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8, Restoration of Austria. Agreements C. 716. M. 428 

arranged by League and relevant docu- 1922,11 

9. Provisional Economic and Financial Com- 

iTilttee, Note on Plan for International 
Clearing House. By. A.E, Janssen E.F.S,270 

C. 716. M. 428. 







arranged by the League of Nations and signed at Geneva 
on October 4th, 1922 

with the 


2 I. 6 d. 





C. 716. M. 428. 

1922. X. 

[Distributed to the Council 
and the Members of the League.] 

Geneva, October 19th, 1922. 







arranged by the League of Nations and signed at Geneva 
on October 4th, 1922 

with the 




I. Pr6face by Sir Arthur Salter, Director of the Economic and Financial 

Section of the League of Nations 5 

II. Correspondence transmitted to the Council of the League by the British 

Cabinet : 

(1) Letter from the Austrian Minister in London to the British 

Prime Minister, August 7th, 1922 15 

(2) Reply from the British Prime Minister, August 15th, 1922 16 

(3) Telegram from the British Cabinet to the Secretary-General 

of the League, August 25th, 1922 17 

III. Minutes of the Meeting of the Council of the League held on August 31st, 

1922 (Speech by M. da Gama, President of the Council) 18 

rV. Minutes of the Meeting of the Council of the League held on September 6th, 

1922 (Speech by Dr. Seipel, Chancellor of the Austrian Republic) ... 19 

V. Resolution adopted by the Council of the League on September 6th, 1922 24 

VI. Extract from the Records of the Meeting of the Third Assembly of the 

League held on September 30th, 1922 (afternoon). [Speeches by Lord 
Balfour (Great Britain), M. Mensdorff (Austria), Lord Robert Cecil 
(South Africa) and M. Leon Bourgeois (France) 25 

VII. Resolution adopted by the Council of the League on October 4th, 1922 ... 31 

VIII. Minutes of the Meeting of the Council held on October 4th, 1922. [Speeches 

of Lord Balfour (British Empire), M. Hanotaux (France), the Marquis 
Imperiali (Italy), M. Pospisil (Czechoslovakia), M. Adatci (Japan), 
M. Quinones de Le6n (Spain), M. Hymans (Belgium), M. Tang Tsai- 
Fou (China) and Dr. Seipel (Austria) 32 

IX. Protocols Nos. I, II (with Annexes and Explanatory Note) and III, signed 

at Geneva on October 4th, 1922 39 

X. Reply of the Financial Committee of the League to the questions referred 

by the Austrian Committee of the Council 48 

XI. Resolutions adopted by the Economic Committee of the League 57 






The League of Nations was first asked to study the problem of the restora- 
tion of Austria in March 1921. After a conference in London in that month, 
the League was informed that the Governments of Great Britain, France, Italy, 
and Japan had decided to release, for a period of years to be determined later, 
their hens in respect of all claims against Austria, whether for rehef credits, 
reparation obligations, or the costs of the armies of occupation. This decision 
was subject to the conditions that other interested Governments would agree to 
a similar postponement and that Austria was prepared to place the administra- 
tion of assets in the hands of the League under the International Credits Scheme. 

This scheme was then under the control of the Financial Committee of the 
League, which therefore at once met, and on April 4th, 1921, stated the main condi- 
tions on which it considered that the restoration of Austria could be achieved. 
Among these conditions were the early decision by the 13 other Governments 
holding hens upon Austria to agree to a similar postponement, a decision by all 
the 17 Governments that the postponement should be for a sufficiently long 
period, such as 20 years, and the wiUingness of Austria herself to undertake 
drastic internal reforms. At the same time, the Committee sent a delegation 
to Vienna, which studied the position on the spot from April 15th to May 10th, 
1921, and recommended a far-reaching and detailed scheme, which was approved 
by the Council of the League and forwarded to the Supreme Council of the Allies 
on June 3rd, 1921. It was a cardinal feature of these recommendations that 
Austria could only be saved by a comprehensive scheme, including internal 
reform, sufficient credits, and a central control of these credits which would 
ensure that they were so used as to assist, and secure, the internal reform. 

At the time when this scheme was framed, Austria's credit position (apart 
from the hens upon her assets) was relatively good, and had not been seriously 
impaired by fears as to her social and political stability. It was believed, and 
with reason, that, as soon as her assets were free, they would serve as a sufficient 
security for private credits without the need for Government guarantees ^. 

The scheme was not put into operation, because the negotiations with the 
many Governments whose consent was necessary to the release of the liens encoun- 
tered many difficulties and proved to be very protracted. It was not before July 
1922 that a way appeared to be opening for a scheme based upon the use of Aus- 
tria's assets. 

In the meantime, by February 1922, Austria's needs had become imperative, 
and, unless assistance had been forthcoming, a collapse must have taken place 
in the early part of this year. In this crisis. Great Britain, France, Italy, and 
Czechoslovakia came to the rescue by providing for assistance from pubUc funds. 
Great Britain advanced £2,250,000 (of which £250,000 was required for the 
repayment of an earlier debt), France made provision for the advance of 55 
miUion francs, Italy made provision for the advance of 70 million lire, and Czecho- 
slovakia arranged to supply 500 miUion Czech crowns. Of these sums, the British 

1 The full documents relating to this scheme havebe en published. (" Financial reconstruction ol 
Austria ". Report ol the Financial Committee of the Council, with relevant papers.) 

S. d. N. 650 (F.). 650 (E.). 10/22. Imp. R^unles. S. A. Lausanne. 

a-dyancc has been entirely expended, but considerable proportions of the French 
and Italian grants, and a smaller proportion of the Czechoslovak grant remain 
available (as will be seen below) to assist in the initial stages of the new scheme. 
These advances were clearly distinguished from the earlier credits, the 
repayment of which was to be postponed for 20 years. Some of them (such as 
the British advance) were specifically to be repayable out of the first loans raised 
by Austria ; others (such as the Czechoslovak advance) were based upon certain 
assets specially released by the Reparations Commission for the purpose, with 
the stipulation that these securities would be incorporated into any securities 
upon which a League of Nations loan scheme might ultimately be based ; all 
remained as a pressing and inevitable charge upon Austria's immediate budgets. 


IN AUGUST 1922. 

By these means, an actual collapse was arrested in the first six months of 
this year. But the advances sers^ed no further purpose. They were granted 
independently by the several Governments ; they were subject to no central 
control. They were, as was natural in the circumstances, consumed for current 
needs and were not the basis of any effective reform. Austria's financial disor- 
ganisation proceeded, and at an accelerated pace. The crown was, in August 
1922, worth only ^/jq of its value six months before, only about ^j-^qq of its value 
a year before, and only ^/ of its gold value. 

The Austrian Government made a desperate appeal to the AlUed Powers, 
then meeting in London. The Austrian Minister stated that some of Austria's 
assets had at last been released to form securities for a loan, "but the foreign 
bankers who, a year ago, were still wiHing to grant such a loan, to-day declare 
that it is impossible to do so, because to them and to the general pubhc the 
continued existence of Austria has become doubtful. The bankers consider the 
revenues offered by the Austrian Government a sufficient financial guarantee ; 
they demand, however, a second guarantee, which can only be given by the Chief 
Allied Powers. " He stated that Austria was attempting to establish a Bank of 
Issue to which the right of issuing notes would be transferred from the Govern- 
ment, in order to arrest the depreciation of the crown, and that Austria was 
embarking on a programme of budget reform and economy. He added, however, 
that " everything depends upon whether, during the period required for the 
carrying through of the financial reforms, a foreign loan will give Austria the 
assurance that she will not have to resort to the printing press again in order 
to cover the requirements of the State, otherwise the financial reforms would be 
definitely doomed to failure. A further depreciation of the krone must neces- 
sarily render impossible the indispensable purchases of food-stuffs and coal from 
abroad and lead to such social upheavals as would constitute the gravest dangers 
for the peace of Central Europe and would mean the end of an independent Austria. 
Every day by which the assurance of the foreign credit is delayed renders it 
doubtful whether the measures which Austria is taking for her own salvation 
will then still be possible. " 

He therefore appealed for Government guarantees to assist in raising a loan 
of £ 15,000,000. 


This communication was considered by the Supreme Council, on behalf 
of which, Mr. Lloyd George, on August 15th, 1922, replied that " the represen- 
tatives of the Allied Governments have, therefore, come to the decision that they 
are unable to hold out any hope of further financial assistance being given to 
Austria by their Governments. They have agreed, however, to a proposal that 
the Austrian situation should be referred to the League of Nations for investi- 
gation and report, the League being informed at the same time that ,having 
regard to the heavy burdens already borne by the taxpayers of the Allied Powers, 
there is no prospect of further financial assistance to Austria from the AlUed 
Powers, unless the League were able to propose such a programme of reconstruc- 
tion, containing definite guarantees that further subscriptions would produce 

substantial improvement and not be thrown away like those made in the past, 
as would induce financiers in our respective countries to come to the rescue of 
Austria. The representatives of theAllied Powers have reached the above decision 
with much reluctance and from no lack of sympathy with the Austrian people, 
but they have been obliged to take into consideration the crushing taxation which 
their respective countries already support in consequence of the war." 

This correspondence was then forwarded to the League with the request that 
it should be placed on the agenda of the next session of the Council. 



The reply of the Allies to the Austrian Government was not such as to 
afford any relief to the anxieties for the immediate future. Its request to the 
League was only " for investigation and report ", and it was coupled with the 
statement that the Allied Governments were unable themselves to hold out any 
prospect of further financial assistance, and that there was no hope, therefore, 
unless a scheme could be devised which would attract money from private sources. 
In this crisis, in the interval between the London Conference and the meeting 
of the Council of the League, Monsignor Seipel, the Austrian Chancellor, visited 
Prague, Berlin and Verona to discuss the situation of his country with the 
Governments of Czechoslovakia, Germany and Italy. It was clear to the 
world that the financial and economic disorganisation and the imminent dangers 
of social distress and disturbance had developed to a point at which they had 
created also a grave political problem. It was also clear that, in this political 
situation, it was more than ever hopeless to expect that private credits would 
be forthcoming on the basis of Austria's own assets. Her best securities, her 
revenues from the customs and the tobacco monopoly, however sufficient in nor- 
mal circumstances, could not be relied upon in the event of serious social or 
political disturbances. No scheme was possible unless they could be supple- 
mented by Governmental guarantees ; and these guarantees, difficult in any 
event, would be more difficult unless something could be done to relieve the poli- 
tical tension. 


The Council was thus confronted with a complex problem, political as well 
as financial in its character. At its first meeting on August 31st, 1922, it at 
once instructed the Financial Committee to examine the financial aspects of the 
problem, while carefully reserving any decision as to whether it would undertake 
any responsibility for the problem and, if so, on what conditions. It then deferred 
further discussion on the subject till the following Wednesday, September 6th, 
1922, partly to enable the Financial Committee to proceed with its work and 
partly to give time for Monsignor Seipel, who desired to present Austria's case 
in person, to join the Austrian Delegation at Geneva. On September 6th, he 
made his appeal ^ in a pubUc meeting of the Council. He described Austria's 
distress and explained the need for a guarantee for a loan to help her through the 
period when she was achieving reform and release from some of the impediments 
to Austrian commerce. He added that Austria was ready to accept a system 
of control as a corollary to assistance, and expressed the opinion that, with such 
assistance, she could soon become economically self-sufficient. He concluded, 
however, with a grave warning that without such assistance the condition of 
Austria constituted a serious danger to the peace of the world, which it was the 
duty of the League of Nations to examine and avert. 

It should be noted that the Austrian representative, in making this appeal, 
and in all subsequent meetings of the Council and its Committee, when 
dealing with the Austrian problem, was himself a member with full and equal 
rights in accordance with Article 4 of the Covenant, which provides that " any 
Member of the League not represented on the Council shall be invited to send 
a representative to sit as a member at any meeting of the Council during the 

1 See page 19. 

— 8 — 

consideration of matters specially affecting the interests of that Member of the 
League. " 

The Council next invited Czechoslovakia also (represented by its Prime 
Minister, Dr. Benes) to join the Council for this question, and formed a 
Committee (the Austrian Committee) entrusted with the direction of all further 
work upon it. The Committee consisted of five members of the Council so 
constituted, viz : Lord Balfour (Great Britain), who was asked to preside over 
the discussions, M. Hanotaux (France), the Marquis Imperial! (Italy), Dr. Benes 
(Czechoslovakia), and Monsignor Seipel (replaced, when he was absent, by 
Dr. Griinberger, the Austrian Minister for Foreign Affairs). 

The composition of the Committee thus expressed the Council's sense 
of both the importance and the range of the question. It continued throughout 
to direct the work, meeting twelve times between the date of its appointment 
and the date of the signature of the Protocols on October 4th, 1922. It will be noted 
that the hitherto separate and independent negotiations were now transferred 
to a single committee which worked continuously and consisted of the represen- 
tatives of all the Powers chiefly concerned, including the Prime Ministers of 
two of them. 

The composition of this Committee, and the subsequent organisation of 
the work, afford a typical example of the methods of the League. The Committee 
used throughout the League's technical organisation. At once determining 
the general outline of the questions requiring solution, it divided them among 
the different expert committees at its disposal. Within the general outline, 
the Financial Committee gave its advice, which, in fact, as will be seen, included 
a comprehensive scheme of financial assistance and administrative reform. Work- 
ing within the same general programme, the Economic Committee considered 
what immediate economic measures could usefully be recommended. At the 
same time, a Legal Committee, drawn partly from legal experts of the several 
Delegations and partly from the permanent staff of the League, advised on such 
legal questions as presented themselves in the course of the work. The Austrian 
Committee of the Council kept in its own hands the specifically political aspects 
of the problem, and maintained its control over the work of the above Committees 
by considering interim reports as they proceeded with their studies. 

The Financial Committee ^ which was first consulted consisted of members 
who met, as did the members of the other Committees giving technical assistance 
to the Austrian Committee of the Council, not as representatives of the different 
Governments, but as experts invited by the League to give their best professional 
advice. The signature of their reports did not, therefore, in any way commit 
the Governments to accepting its recommendations. At the same time, the 
different members were naturally in a position to estimate, with some special 
knowledge, the probable poHcy and attitude of their respective countries. Their 
work was done at Geneva, during the period of the third session of the Assembly, 
for which Delegations of representatives of the countries concerned were present. 
The conditions were favourable for the working out of a scheme which should 
be both adequate in its provisions and not impossible of acceptance, and for 
an understanding by the Governments whose assistance was required of the reasons 
for which the precise scheme put before them was recommended. 


The Financial Committee was first asked to consider, in consultation with 
the Austrian Representatives, what measures were required and were practicable 
to secure budget equilibrium ; after what period, with these measures, the result 
desired should be obtained ; and what deficit in terms of gold must be con- 
templated as inevitable during the intervening period. 

The Committee repUed that the main economies should be secured by the 
reform of State industrial enterprises and the reduction in the number of officials. 
It pointed out that State enterprises at present involved a loss of 170 million 
gold crowns a year (£7,800,000). The railways alone involved a loss of 124 millions 

• The members of the Financial Committee who were present during these discussions -were: 
M. .Ianssen (Chairman), M. Ahai, M. Avenol, Sir Basil Blackett frepiaced at later meetings by Mr. Fass), 
Dr. PospisiL, Sir Henry Strakosch, with the addition of M. Maggiorino Ferraris and M. A. Sarasin, 
who were co-opted for the purpose. 

— 9 — 

(£5,700,000), largely because, while wages follow the cost-of-hving index, 
the railway tariffs were only one-fifth of what they would be on that basis. The 
loss should cease within two years and, in view of the important transit trade, 
the railways should ultimately become a source of profit. With regard to officials, 
the Committee pointed out that Vienna, as the capital of a country of six millions, 
has more State employees than when she was capital of an Empire of over 50 mil- 
lions. It considered that within two years a third of the expense, amounting 
to 130 million gold crowns (£6,000,000) ought to be saved. With these measures, 
the "normal budget" should be reduced to about 237 milhon gold crowns 
(£10,900,000). Simultaneously, the yield of taxation must be increased and 
within two years should reach 237 million gold crowns — and so balance the 
budget — and thereafter exceed it. In the two years, however, while this process 
of reducing expenditure and increasing revenue is incomplete, a total deficit of 
520 million gold crowns (£24,000,000) is probable, or 650 million gold crowns 
(£30,000,000) including the sums required to repay the advances made this year 
and not covered by the postponement arranged for the credits given in earlier 

The Committee was next asked what securities Austria could offer for 
private credits. It replied that, apart from the forests and salt monopolies 
(which were proposed as security for the new Bank of Issue), the proceeds of the 
Customs and the tobacco monopoly should be available as security for a loan, 
and, if necessary, the impoi fonder as well. The Customs and tobacco 
monopoly alone should, with the necessary administrative reforms, give an 
annual yield of 80 miUion gold crowns (£3,700,000), which exceeds the estimated 
cost of the interest and amortisation of even the maximum loan of 650 miUion 
gold crowns. 

In the unanimous opinion of the Committee, therefore, the securities were 
ample for the credits required for the transition period, on the vital conditions 
that the reforms recommended are carried through and that external and internal 
order are assured. 

With the main conditions of the financial problem thus estabUshed, the 
Committee, in answer to further questions from the Austrian Committee of 
the Council, proceeded to study in detail how the deficit for the two years could 
be met, and what fonn of control was required in the interests of the reforms 
and of the securities on which the loan was to be based. Its recommendations 
will be more conveniently summarised after some account has been given of 
the subsequent negotiations. 

The Financial Committee, in presenting its report, pointed out that no 
financial scheme could in itself save Austria. " Behind the problem of financial 
and budget reform remains that of the fundamental economic position. Austria 
cannot permanently retain a sound financial position, even if she attains it for the 
time, and maintain her present population unless her production is so increased 
and adapted as to give her (with her " invisible exports ") an equiUbrium 
in her trade balance as well as her budget. This balance is at present seriously 
adverse, partly, but certainly not wholly, as a result of inflation and currency 
dislocation. AH possible measures, whether by the ameUoration of the inter- 
national economic relations, the encouragement of the conditions which would 
increase Vienna's entrepot, financial, and transit business, or of those which 
will attract further private capital towards the development of her productive 
resources, are therefore of the greatest importance. These are, however, outside 
the Financial Committee's province. If the appropriate financial policy is adopted 
and maintained, the Austrian economic position will adjust itself to an equili- 
brium, either by the increase of production and the transfer of large classes of 
its population to economic work, or economic pressure will compel the population 
to emigrate or reduce it to destitution. At the worst, this would be better 
than the wholesale chaos and impoverishment of the great mass of the town 
population which must result from the continuance of the present financial 
disorganisation, which affords no basis for such economic adaptation as is pos- 
sible. " 

— 10 


Simultaneously, the Economic Committee ^ of the League considered whether 
it could make any immediate suggestions which would assist in this wider and 
longer task of the re-estabUshment of the trade balance. It recognised that the 
basis must be found in the financial scheme and that on this basis the economic 
position must be gradually built up. It therefore confined itself for the time 
to certain preliminary suggestions. First, recognising the objections at present 
maintained to the full application of the Porto Rosa recommendations, it advised 
the conclusion of conventions and bilateral agreements between Austria and 
each of the Succession States, based, as far as possible, on the Porto Rosa Pro- 
tocol, but with such modifications as might be possible and advisable to intro- 
duce in order to adapt them to each special case. Secondly (while endorsing 
the adviu? of the Financial Committee as to State enterprises), the Economic 
Committee called attention to the need for reform by Austria of both her internal 
economic system and the conditions of her external trade. 


Meanwhile, the Austrian Committee of the Council had itself been discussing 
directly the terms of a political declaration designed to give confidence in the 
political and economic integrity and independence of Austria. The whole scheme 
was gradually developed, with the assent of the different delegates of the Govern- 
ments, and on the last day of the Assembly (September 30th, 1922) the Council 
was able to report that, though its task was not fully accomplished, there was 
a good prospect of a complete scheme being signed with the assent of the Govern- 
ments concerned within a few days. 

This result was achieved on Wednesday, October 4th, 1922, when three pro- 
tocols were signed, covering, with their annexes, which include the Financial 
Committee's report, the whole of the Council's scheme ; and these signatures 
indicated the complete and unreserved assent to every part of the scheme of the 
Governments of Great Britain, France, Italy, Czechoslovakia and Austria. 

The first of these protocols, signed by all the above Powers and open for 
the signature of all countries, contains a solemn declaration that the signatories 
will "respect the political independence, the territorial integrity, and the sove- 
reignty of Austria ; that they will seek no special or exclusive economic or finan- 
cial advantage which would compromise that independence ; and that, if the 
occasion arises, they will refer the matter to the Council of the League and comply 
with its decisions." Austria herself, in the same protocol, enters into correspon- 
ding obligations. Protocol No. II, with its annexes, states the conditions of the 
guarantee of the loan, the obligations of the guaranteeing Governments, and the 
powers and duties of the Committee composed of representatives of those Govern- 
ments. It is signed by the four principal guaranteeing Governments and by 
Austria, and is open for signature (with suitable modifications as to the extent 
of their guarantee) by all other countries able and willing to participate in the 
financial scheme. Lastly, Protocol No. Ill sets out separately the obligations 
of Austria and the functions of the Commissioner-General, who is to collaborate 
with her in her programme of reform and its execution. From these protocols, 
taken together, emerges the League's general scheme. 


The basis of the scheme is the political integrity and economic independence 
of Austria and the Declaration (Protocol No. I) designed to ensure it. Aided by 
the confidence which it is hoped this Declaration will create, Austria is to com- 
mence a programme of reform (including economy in expenditure and increased 
revenue from taxation) which will ensure the balancing of her budget by the 
end of 1924. In the meantime, the excess of her expenditure over the revenue 

' The Economic Committee constituted a special Sub-Committee for this purpose consisting of 
M. Serruys, M. DvoraCek, M. Guarnebi, M. Heer and Sir Hubert Llewellyn Smith. 

— 11 — 

available from normal resources during these two years — estimated at a 
maximum of 650 million gold crowns — will be met by the proceeds of loans. 

These loans will, for the reasons given above, be guaranteed by external 
Governments, in addition to being secured on assets which (if the reforms are 
successful and order and stability maintained) will be sufficient without appli- 
cation to the guarantors. The guarantees will take the form of a definite guarantee 
of a stated proportion of the interest and amortisation by each guaranteeing 
Power. The Governments of Great Britain, France, Italy and Czechoslovakia 
have each guaranteed 20 %, or 80 % in all, in addition to covering a certain por- 
tion of the risk of other guaranteeing Powers ^. 

Only 20 % ^ remains, therefore, to be covered by guarantees from all other 
countries. Assuming that this remaining percentage is secured, the future sub- 
scriber to the loan will not only have the security of the assigned assets, but, 
if they fail, will have every fraction of his interest and amortisation further 
assured by the guarantee of a specified Government (80 % of the total by the 
four Governments named above). The guaranteeing Governments themselves 
will be subject to no cash liability so long as the assigned assets prove sufficient 
for the service of the loan. 

With the prospect of resources from these loans, Austria will be relieved 
from the necessity of financing herself by the issue of paper money and so causing 
the precipitous fall of the crown, which renders all efforts at budget equilibrium 
futile and destroys any stable basis for the economic life of the country. The 
scheme therefore assumes, and regards as essential, the establishment of the 
proposed Bank of Issue under certain definite and specified conditions. The 
Austrian Government will surrender all right to issue paper money, and will 
not, except with special authorisation, negotiate or conclude loans. 

Austria, therefore, in carrying through her reforms, is no longer building on 
the shifting basis of a continuously depreciating currency. Hitherto she has 
been in the unhappy position of knowing that she could not stop inflation until 
her budget balanced, and could not balance her budget while inflation continued. 
Now for the first time she has a prospect of having at her disposal the funds 
required to carry her over the necessary transition period. 

But the successful accomplishment of the reform programme, on which 
both Austria's prosperity and the value of her assets depend, will necessarily 
be a difficult and painful task. The scheme therefore includes the appoint- 
ment of a Commissioner-General, whose duty will be to ensure, in collaboration 
with the Austrian Government, that the programme of reforms is carried out 
and to supervise its execution. He will derive power from his control of the dis- 
posal of the loans. 

"The Austrian Government agrees that it may not dispose of any funds de- 
rived from loans... except by authorisation of the Commissioner-General" ; but 
the conditions which he may attach to his authorisation "shall have no other 
object than that of assuring the progressive reahsation of the programme of 
reforms and of avoiding any deterioration of the assets assigned for the service 
of the loan." 

The officer to be entrusted with this great responsibiUty is not the represen- 
tative of the guaranteeing Powers. He is an officer of the League of Nations. 
He will be appointed by and responsible to the Council of the League, of which 
the Austrian representative is, when Austrian matters are discussed, a full and 
equal member. Indeed, the Council, in approving the scheme, added a resolution 

' The Financial Committee raised its original estimate of the budget deficit of 520 milliou 
gold crowns to 650 millions in order to include the repayment of advances made this year by Great 
Britain, France, Italy and Czechoslovakia. It is necessary that all the guarantees should apply to the 
whole of this sum, in order that the loans — or, more correctly, the "loan", though it will, of course, be 
issued in instalments at different times as Austria's needs and market conditions may determine — may 
have the same character and be based on the same securities. In order, however, that any States not 
interested in the repayment of the advances may limit their liability to a guarantee of a proportion of 
the total sum required by Austria tor her other needs (520 million gold crowns), Great Britain, France, 
Italy and Czechoslovakia have entered into a speci al arrangement by which they cover the risk of all 
other guaranteeing countries so far as it relates to the additional sum of 130 millions. The effect of this 
rather technical arrangement is that any country can undertake to guarantee a stated percentage of 
the loan with an effective responsibility which is limited to that percentage of a total of 520 million gold 
crowns, instead of 650 million gold crowns, while the maximum liability of the tour principal guarantee- 
ing Powers reaches a total of 84% instead of 80%. 

^ This, for the above reason, does not necessitate any effective liability on all Powers of more than 
20% on 520 millions (or 16% on 650 millions). 

— 12 — 

that the Commissioner-General should not be drawn from any of the principal 
guaranteeing countries (nor from countries bordering upon Austria). His primary 
concern will be identical with that of the Austrian Government and the per- 
manent interests of the Austrian people : namely, that the measures to enable 
Austria to achieve a position of self-supporting independence shall be successful ; 
the due maintenance of the value of the securities of the loan will, of course, be 
a part, but a part only, of the general programme which it will be the duty of 
the Austrian Government to frame and execute, and his to supervise. The Com- 
missioner-General will live at Vienna. He will report monthly to the Council 
of the League. His functions will end as soon as the Council judges that the 
financial stability of Austria is assured. 

In addition to the League's Commissioner-General, there will be a "Com- 
mittee of Control of the Guaranteeing Governments." This Committee, of which 
the Italian member will be President and the Czechoslovak member Vice-Pre- 
sident, will be formed of the representatives of the guarantors with votes pro- 
portionate to the guarantees they have offered, and will watch their special 
interests. It will not be in permanent session, but will meet from time to time, 
not in Vienna but normally at the seat of the League. The approval of this Com- 
mittee by a two-thirds majority is required to the main conditions under which 
the loan, whose interest and amortisation are guaranteed, is to be subscribed ; 
and it will, by the same majority, determine the conditions of the payments 
should the guarantees actually be called upon. For other purposes, the Committee 
works normally by a majority vote. It receives the monthly reports presented 
by the Commissioner-General to the Council ; it may ask him for information 
as to the progress of the reforms, and may make representations to him with 
regard to safeguarding the interests of the guarantors. If the assigned revenues 
are insufficient for the service of the loan, it may require the assignment of addi- 
tional securities. 

In exercising these rights, the Committee communicates not with the Aus- 
trian Government but with the Commissioner-General. The Committee and 
each guaranteeing State have a right of appeal to the Council en cas d'abus. 

The rights and powers of both the Commissioner-General and the Committee 
are carefully defined so as to restrict them to the precise objects in which they 
are concerned — the execution of the reform programme and the maintenance 
of the value of the securities — and to avoid any infringement of the sovereignty 
of Austria and the full responsibility of her Government. 

The essential features of the agreement arrived at are thus a programme of 
financial reform extending over two years ; provision to meet the deficit during 
this period by guarantee loans ; the arrest of the collapse of the crown ; the super- 
vision of the Austrian Government's execution of the scheme within carefully 
defined and restricted limits. 



It will be well to add to this general outUne a note as to particular difficulties 
of the earlier stages. The Governments' promises of guarantees require ratifi- 
cation by the respective Parliaments, and loans can only be issued on the basis 
of — and, in practice, some time after — such ratifications. It is of great impor- 
tance that the ratifications should be secured before December 31st of this year. 
As soon as they are secured, any deficit which may thereafter accrue between 
that time and the issue of a long-term loan can be met without great difficulty 
by the issue of Austrian Treasury Bills in gold crowns or foreign currencies, 
subject to right of redemption from the immediately prospective loan. 

The period up to the end of this year presents special difficulties. It is 
estimated that, during it, there will be a deficit of 120 to 160 million gold crowns. 
The Financial Committee hopes that it may be possible to meet it by the issue 
of three- or six-months Treasury Bills (to be issued in Austria by the Austrian 
Government and purchased by the Austrian banks), secured partly by the 
unspent portion of the credits arranged by the French, Italian, and Czechoslovak 
Governments early in this year, and partly by a first charge on the Customs and 
on the tobacco monopoly. 

During this same period, between now and the end of the year, it may be 
convenient to add that the following further action is required : 

— 13 — 

The Austrian Government should at once communicate certain immediately 
practicable reforms. 

It must frame, in collaboration with the Commissioner-General, or, pending 
his appointment, with a delegation from the League, a programme of reform 
calculated to secure budget equilibrium by the end of 1924. 

It must present to the Austrian Parliament a draft law giving, during two 
years, to any Government which may be in authority, full powers within the limits 
of the programme to take all measures to assure budget equilibrium by the 
end of 1924 without the necessity of securing further approval by Parliament. 

The Bank of Issue should open ; and the issue of notes by the Austrian Gov- 
ernment should cease. 

The Commissioner-General and the Committee of Control of the guaranteeing 
Powers should be appointed. 

Additional promises of guarantees to complete the 100% should be obtained 
from other Governments than those which have at present signed the Protocol. 

The promises of guarantees should receive parliamentary ratification. 

This is the scheme now presented by the Council with a definite undertaking 
(subject to parhamentary ratification) of the Governments of Great Britain, 
France, Italy, and Czechoslovakia to guarantee between them (both as to interest 
and amortisation) over four-fifths of the necessary loan ; and with the correspond- 
ing undertaking by the Austrian Government to take the measures and to submit 
to the control required by the scheme. 

Other countries are invited to contribute towards completing the remaining 
portion of the guarantees — less than one-fifth — which still remains to be covered, 
and all countries are invited to sign the poUtical declaration. (See Protocol No. I.) 

The discussions and speeches which accompanied the preparation and the 
presentation of the scheme clearly express the Council's sense at once of the 
possibiUty and of the extreme difficulty of the task which still remains. The 
problem was given to the League at a moment when Austria was on the very 
verge of disaster, her financial disorganisation almost complete, her currency 
almost worthless, her social and political stability in obvious danger. From 
such a position recovery is not easy. When the scheme was presented at the 
public meeting of the Council on October 4th, it was thought well to quote with 
special emphasis the following grave statement of the Financial Committee : 

" Austria has for three years been living largely upon public and 
private loans, which have voluntarily or involuntarily become gifts, 
upon private charity and upon losses of foreign speculators in the crown. 
Such resources cannot, in any event, continue and be so used. Austria 
has been consuming much more than she has produced. The large 
sums advanced, which should have been used for the re-establishment 
of her finances and for her economic reconstruction, have been used 
for current consumption. Any new advances must be used for the 
purposes of reform ; and within a short time Austria will only be able 
to consume as much as she produces. The period of reform itself, even 
if the new credits are forthcoming, will necessarily be a very painful 
one. The longer it is deferred the more painful it must be. At the 
best, the conditions of life in Austria must be worse next year, when 
she is painfully re-estabhshing her position, than last year, when she 
was devoting loans intended for that purpose to current consumption 
without reform. 

" The alternative is not between continuing the conditions of life 
of last year or improving them. It is between enduring a period of 
perhaps greater hardship than she has known since 1919 (but with 
the prospect of real amelioration — thereafter the happier alternative), 
or collapsing into a chaos of destitution and starvation to which there 
is no modern analogy outside Russia. 

" There is no hope for Austria unless she is prepared to endure 
and support an authority which must endorse reforms entailing harder 
conditions than those at present prevailing, knowing that in this way 
only can she avoid an even worse fate." 

— 14 — 

Complementary to this warning, and not inconsistent with it, is the confidence 
expressed by the Austrian Chancellor that if Austria can find the indispensable 
aid from outside, she can " become self-supporting sooner than is usually thought 
possible. Austria possesses agricultural resources which only require to be 
intensified ; she possesses old-established industries which have only been pre- 
vented by the war, and its consequences during the post-war period, from ob- 
taining the capital required to work them ; she possesses the untapped resources 
of her water-power, which it has so far been impossible to exploit adequately. 
But her most precious possessions are her excellent geographical situation and, 
above all, her intelligent and industrious population. " 

It is with these dangers and with these hopes that Austria, with the aid and 
support of the League and of the Governments which are assisting her, has to 
climb up " the precipitous but not impossible track " towards financial reform 
and self-supporting economic independence. 

Director of the Economic and Financial Section. 

• October 5th, 1922. 

— 15 — 





London, August 7th, 1922. 
Mr. Prime Minister, 

I have been instructed to address to you, as President of the Inter-Allied 
meeting, the following Note, and to beg you to bring it to the knowledge of the 
statesmen participating in the dehberations. 

The Austrian Government is faced with momentous decisions. 

During the last few days the Reparation Commission has at last released 
some of Austria's assets in order to render possible the taking up of a foreign 
loan. But the foreign bankers, who a year ago were still wilhng to grant such 
a loan, to-day declare that it is impossible to do so, because to them and to the 
general public the continued existence of Austria has become doubtful. The 
bankers consider the revenues offered by the Austrian Government a sufficient 
financial guarantee for the desired credit ; they demand, however, in addition, 
a second guarantee which can only be given by the chief AlUed Powers. For 
this reason the last resort of the Austrian Government is to appeal, through the 
enclosed memorandum, to the Powers and to address to them the urgent request 
that they should undertake a partial guarantee for the loan, for which such secu- 
rity is offered by the Austrian Government as is acknowledged by the financial 
experts to be adequate. 

The experience of the last two years has shown that the Budget can only 
be balanced if the currency is stabilised simultaneously. For this reason, Austria 
is at the present moment, and out of her own resources, estabhshing a new Bank 
of Issue, tor which the capital is supplied by Austrian banks. At the same time 
the revenue is, as far as possible, put on a gold basis ; the expenditure, already 
reduced by the abolishing of subsidies for foodstuffs, is being further diminished 
by the sale — already effected or about to be effected — of unprofitable State 
concerns, by the reorganisation of the railway and postal services and by the 
reduction, at first by 10 %, of State officials. In order to cover for the next 
few months the deficit, which, as a result of the progressive depreciation of the 
krone, is rapidly increasing, an internal forced loan will be taken up. The Gov- 
ernment and Parliament have decreed by law that the printing-press shall 
no longer be resorted to for the State and its requirements. Anyon- knowing 
the situation will agree that this finance plan, already fixed by law, embodies 
Ihe utmost exertions of which the present Austria is capable. 

Everything depends upon whether, during the period required for the carrying 
through of the financial reforms, a foreign loan will give Austria the assurance 
that she will not have to resort to the printing-press again in order to cover the 
requirements of the State, otherwise the financial reforms would be definitely 
doomed to failure. A further depreciation of the krone must necessarily render 
impossible the indispensable purchases of foodstuffs and coal from abroad 
and lead to such social upheavals as would constitute the gravest dangers for the 
peace of Central Europe and would mean the end of an independent Austria. 
Every day by which the assurance of the foreign credit is delayed renders it doubt- 
ful whether the measures which Austria is taking for her own salvation will then 
still be possible. 

For this reason the Austrian Government begs the Powers to decide at 
once whether they are prepared to assume a partial guarantee for the Austrian 
loan of 15 milhon pounds sterling. 

If against all expectations this last hope were also to prove chimerical, the 
Austrian Government, knowing that to save the situation they had tried in vain 
all means which lay in their power and which constituted the utmost exertion 
oi the people, would have to call together specially the Austrian Parliament 
and to declare, in agreement with it, that neither the present nor any other Gov- 
ernment is in a position to continue the administration of the State. At the 
same time they would, before the Austrian people and the public opinion of the 
whole world, have to make the Entente Powers responsible for the collapse of 
one of the most ancient centres of civiHsation in the heart of Europe, and would 
have to lay into their hands the future fate of Austria. 

I have the honour to be, 

with the highest consideration, 
Mr. Prime Minister, 

Your obedient servant, 

(Signed) Georg FRANCKENSTEIN. 


London, August 15th, 1922. 

I have the honour to refer to your Notes dated August 7th and 13th, 1922, 
respectively, in which you asked me to bring to the notice of the Inter-Allied 
Conference a request by the Austrian Government that the Allied Powers should 
assume a partial guarantee for an Austrian loan, and to state that I brought 
the matter before the Conference, which considered it at a meeting held yesterday 

The representatives at the Conference of the Allied Governments gave the 
most careful attention to the request put forward, and in connection with it 
they reviewed the grants already made to Austria by their Governments. As 
you are aware, substantial financial assistance has been accorded by the Allied 
Governments to Austria since the war. The French Government has granted 
to Austria, sums of approximately £3,500,000, and in addition the French Par- 
liament has voted this year the sum of 55,000,000 francs. The ItaUan Govern- 
ment has already granted Austria 280,000,000 lire, and the Italian Parliament 
has voted recently a further grant of 70,000,000 lire. The total contributions 
of Great Britain since the war amount to £12,500,000. 

These substantial payments unfortunately appear to have produced no 
permanent improvement of the Austrian financial situation, which, on the con- 
trary, has gone from bad to worse. The last credit by Great Britain, granted in 
the spring of this year, amounted to £2,000,000 and was given in the hope that 
it would definitely enable Austria to become solvent. The situation disclosed 
in your two Notes shows that this hope has not been reahsed. 

The representatives of the Allied Governments have therefore come to 
the decision that they are unable to hold out any hope of further financial assis- 
tance being given to Austria by their Governments. They have agreed, however, 
to a proposal that the Austrian situation should be referred to the League of 
Nations for investigation and report, the League being informed at the same 
time that, having regard to the heavy burdens already borne by the taxpayers 
of the Allied Powers, there is no prospect of further financial assistance to Aus- 
tria from the Allied Powers, unless the League were able to propose such a pro- 
gramme of reconstruction, containing definite guarantees that further subscrip- 
tions would produce substantial improvement and not be thrown away like 
those made in the past, as would induce financiers in our respective countries 
to come to the rescue of Austria. The representatives of the AlUed Powers have 
reached the above decision with much reluctance and from no lack of sympathy 
with the Austrian people, but they have been obliged to take into consideration 
the crushing taxation which their respective countries already support in conse- 
quence of the war. They do not feel that they would be justified in caUing upon 

- 17 - 

their heavily burdened nationals to assume further obligations for the benefit 
of Austria, which has, in the few years since the war, already received so much 
from them with such disappointing results. 

I have the honour to be, Sir, 

Your obedient Servant, 

(Signed) D. LLOYD GEORGE. 



London, August 25th, 1922. 

Notes from and to Austrian Minister were sent to you for consideration of 
Council at next meeting. Question should therefore be added to agenda. 

— 18 — 





(Held at Geneva, August 31s/, 1922, at 4 p.m.). 


Present : All the representatives of the Members of the Council, and the 

The representative of Austria was invited to take his seat at the Council 

M. DA Gama, representative of Brazil (President), submitted a proposal 
in the following terms in regard to the procedure to be followed in dealing with 
the question of Austria : 

" This problem is, as we all reaUse, at once of the gravest importance and 
the greatest urgency. The Council will doubtless, therefore, desire to arrange 
a procedure which will both admit of careful consideration of the problem now 
submitted to it and will also avoid any waste of time. 

" The Austrian problem has, of course, already been studied in detail by the 
Financial Committee, and the Council made definite recommendations as to 
the conditions on which it considered the Austrian finances could be put upon a 
stable and permanent foundation. 

" For reasons which I do not now need to recall, unhappily no effect was 
given to those recommendations, and the fundamental evils from which Austria 
was then suffering remain and in an aggravated form. 

" We have now been asked again to examine and report in even more difficult 
circumstances, and the Council will doubtless desire to consider very carefully 
whether it is in a position to assist in solving the problem in its present state, 
and, if so, upon what conditions. The problem has at the present moment many 
aspects, some of which are graver than when the Financial Committee last exam- 
ined the question. One important element, in any case, however, in the question 
as now presented, is the financial position, with the changes which have occurred 
in the last eighteen months. 

" I suggest, therefore, that the Council should at once, this afternoon, instruct 
the Financial Committee again to examine the question so far as it falls within 
its competence, and report to the Council as soon as possible. 

" I suggest as to its terms of reference that the Committee should take the 
question as defined in the relevant portions of the letter written by the British 
Prime Minister on behalf of the Powers at the London Conference to the Austrian 
Minister, and should furnish a report on the financial aspects of this question as 
one element of the problem with which the Council is confronted. 

" I suggest, secondly, however, that without waiting for the completion of 
the work which will begin at once, but must necessarily take some httle time, 
the Council should set aside a definite day, say Wednesday next, for hearing at 
length the exposition of the Austrian situation in all its aspects by the Austrian 
representatives, who are now with us. 

" The Council will, of course, throughout, conduct its discussions and arrive 
at its decisions in continuous consultation with the representatives of Austria. 
It is one of the fundamental principles of the Covenant that a country, though 
not formally a Member of the Council, becomes a Member with full and equal 
rights when questions especially affecting its interests are being discussed. " 

The procedure proposed by the President was approved. 

— 19 





(Held on Wednesday, September Qth, 1922, at 4 p.m.). 


Present : All the representatives of the Members of the Council, and the 
Secretary-General . 

Mgr. Seipel (Chancellor of the Austrian Republic) and M. Grunberger 
(Austrian Foreign Minister), representing the Austrian Republic, and M. Ben^s 
(Prime Minister of Czechoslovakia) were also present. 

M. DA Gama (President) stated that the Council had met in public session 
to consider the situation of Austria. This question had been referred to the Council 
by Mr. Lloyd George on behalf of the Allied Governments represented at the 
Conference of London. 

The general conditions of the problem before the Council were well known. 
The Council had decided to invite the representatives of the Austrian Government 
and of the Czechoslovak Government to take part in its deliberations. He 
was glad to welcome Mgr. Seipel and M. Benes. 

Mgr. Seipel and M. Benes came to the Council table. 

Mgr. Seipel made the following statement to the Council : 

" It is with profound emotion that I come to-day before the Council of the 
League of Nations to plead my country's cause. At this solemn moment I cannot 
help recalling the time when we pacifists saw in the League of Nations a great 
but distant ideal. We Austrian pacifists assembled, with the best minds of other 
nations, around M. Henri Lammasch to strive for this idea with voice and pen. 
We did so because at that time latent confUcts were already ripe — confhcts 
which we saw with horror culminate in the world-war. It is true that during 
and after the war, scepticism appeared to prevail over ideahsm ; it is true that 
the idea of the League of Nations failed to prevent the war. This scepticism 
was confirmed even when the idea of the League of Nations was put into practice. 
Was not this League created by the very Treaties which, though they put an end 
to war, were far from bringing us a real peace ? Did not the League of Nations 
appear to be an instrument in the hands of the victors ? Yet within a short time, 
enemies of yesterday have been admitted to the League of Nations, Austria 
amongst the first. I appear therefore before you to-day to beg you to help my 
country, which is a Member of the League of Nations — I who have never lost 
faith in the reconciliation of peoples and in a new order higher than individual 
nationahsm and including the whole world. 

" Objections may perhaps be raised that it is not for the League of Nations 
to procure credits for a State which is threatened with ruin. But Austria is not 
approaching the League of Nations to-day solely in order to ask for financial 
help. The League of Nations would certainly not be departing from its noble 
task by helping Austria — on the contrary. There is no more essential part 
of that work than the maintenance of the peace of the world. The fundamental 
idea of those far-sighted men who created the idea of the League of Nations was 
to dispel the difficulties which, but for its intervention, would threaten the world 
with an outbreak of war. If this is to be the work of the League of Nations, 
is not the League within its rights in preventing those disputes from arising ? 
Is it not better to prevent evils whose disastrous consequences it would be hard 
indeed to remove ? That is the case now with Austria. 

— 20 — 

" I need not describe to you what those disastrous consequences would be. 
Austria can no longer check the depreciation of her currency, which becomes 
more disquieting every day, and our people, who have endured such terrible 
suffering and who are perhaps even more crushed by fear for the uncertainty 
of their future than by the physical misfortunes of the present time, are menaced 
by actual decimation through hunger and cold. These disasters would not only 
endanger the maintenance of order within the heart of Europe ; they would 
involve the ruin of a territory which, although comparatively small, plays an 
important part in the commerce and productivity of the world. These disasters 
would also cut off the western peoples from direct communication with their 
important markets in the ( ast ; the creditor States of Austria would certainly 
lose their money, whether reparations or interim credits granted after the war. 
But above all it would mean the disappearance of one of the most valuable and 
most ancient centres of civilisation in the world. It would, moreover, be a serious 
blow to the Treaties of Peace, for it would afford a proof that the new Austria 
which they created is incapable of existence, either now or in the future. A 
wide gap would be formed in the centre of the map of Europe, which, by force 
of attraction, would drag all its neighbours down into the same abyss, and would 
thus upset the balance which, apart from Austria, is even now only with 
difficulty maintained. 

" The League of Nations has before it in the Austrian question one of the 
noblest of tasks ; if it succeeds, if its authority prevails — and we ask for 
nothing but to recognise that authority — if it is able to lead the Governments 
and peoples towards a real world-peace, the world will believe in it. In that case, 
the League of Nations, to which I have the honour to speak to-day, will be that 
League of Nations which has been the dream of men of good-will throughout 
the world. 

" But, gentlemen, you may ask me why Austria considers herself authorised 
to speak to you thus. It is her distress which drives her to it, and in order to 
show you the extent of that distress, I will venture to put before you the follow- 
ing few figures : 

100 Swiss francs were equal : 

on July 1st, 1919, to 567 Austrian crowns 

» 1920, to 2,702 » 

» 1921, to 12,200 » 

» 1922, to 360,000 » 

"One Czechoslovak crown, the value of which had not as yet reached four 
Austrian crowns on July 1st, 1920, was equivalent to 10 Austrian crowns on 
July 1st, 1921, to 364 Austrian crowns on July 1st, 1922, and has at present 
reached a maximum of 3,000 Austrian crowns. 

'• All the Members of tlds Council, with this evidence before them will, I em 
sure, realise that such a depreciation, which is almost unique in the financial history 
of the world, must entail the most disastrous economic consequences for a country 
such as Austria, which has to import from neighbouring States, whose exchanges 
are so high, articles essential for everyday Ufe. How are we in future to buy 
corn, coal, sugar, etc ? 

" Two years ago we had to struggle against the dearth of goods which was 
then felt throughout the world. At that time the Powers, realising the painful 
situation of our country, granted us help by sending us food. Since then the 
situation has completely changed. The question of supplies is no longer a prob- 
lem of goods ; it is now purely a financial problem. This situation must ine- 
vitably produce once more a scarcity of goods in our country. It is only because 
of the terrible depreciation of the Austrian crown that the population of Austria 
finds itself once more, in 1922, completely unable to procure the necessities of 

" The price of bread in Austria was for a considerable time comparatively 
small owing to the State subsidies. But immediately these subsidies were brought 
to an end as a result of the financial situation of Austria, a large increase in price 
was, of course, inevitable. We could never have foreseen, however, that prices 
would double in a few we ks and would reach a gigantic figure. A loaf of bread, 
which only cost half an Austrian crown in time of peace, now costs 6,000 crowns. 
I need not dwell further on the disastrous consequences of such prices. 

— 21 — 

" A kilo of coal imported into Austria from the Czechoslovak Republic, 
which a year ago cost 8 crowns in Vienna, now costs 400 crowns ; and remember 
that this high price is not confined to food alone. A shirt, for example, which 
could be obtained in peace-time for 6 crowns, now costs nearly 200,000 crowns. 

" These few examples will prove to you that no State in the world could exist 
under such conditions. 

" But you will ask me this question : Has everything possible been done 
to cope with these misfortunes ? We have no wish to deny that the Powers, 
and the League of Nations in particular, have given careful study to the Austrian 
problem. In the spring of last year, indeed, the Financial Committee of the 
League of Nations prepared a complete financial plan which would have saved 
Austria. As you know, the fundamental basis of this financial programme was 
the suspension of hens on Austrian resources. It was laid down that the Austrian 
Government should take financial steps which would affect the whole economic 
life of the country simultaneously with the granting of the credits promised at 
that time. 

"When the Austrian Government realised the difficulties which unexpectedly 
prevented the granting of these credits, it decided to take action by itself and 
to effect financial reforms within the country ; it increased taxation with all 
possible speed, with the object, and in the continual hope, that credits would 
be forthcoming. 

" In spite of the international political difficulties which arose, the Government 
then decided to abolish the subsidies on foodstuffs, which weighed very heavily 
on the State exchequer ; and by abandoning the idea of acting only in conjunction 
with foreign help, it brought to the forefront the principle of saving Austria by 
her own means. 

" At the same time the Government took all steps to call for an urgent suspen- 
sion of hens. Seeing that all its efforts were unavaiUng, it finally decided to 
propose that the liens should be suspended in respect of certain sources of revenue 
which it considered essential for the establishment of a new Bank of Issue and 
for the minimum credits which it hoped to obtain from abroad. It finally 
secured the liberation of these sources of revenue a few weeks ago, after 
unforeseen delays. 

" But a further disaster immediately arose. The keystone of the financial 
reforms based on the efforts of Austria alone was the Bank of Issue. This was 
to be created by the resources of the Austrian banking institutions, in order 
to prevent any further depreciation of the crown in the future. 

" It was then that foreign capital threatened to compromise the financial 
plan which we had established with so much trouble. As you know, two of the 
largest Austrian banks, the Anglo-American Bank and the Bank of the Austrian 
States, were converted after the war into EngUsh and French institutions. But 
foreign capital, having taken an interest in the new Bank of Issue throiigh these 
two institutions, confused our efforts to save Austria by her own means with 
the question of foreign credits, and obliged us to plead our cause before the Great 
Powers at the Conference of London. At the same time, when the Austrian prob- 
lem was referred to the League of Nations, the directorates of the two banks 
in question demanded such important changes in the statute of the new Bank of 
Issue that the negotiations on this subject were still unfinished when I had to 
leave Vienna. 

" The final decisions of Paris were still awaited, so that the success of our 
best efforts was compromised by the foreigner, whose good faith, nevertheless, 
I willingly recognise. 

" But, gentlemen — I must ask the question — why have we received this 
treatment ? Very probably because, in spite of the most exhaustive enquiry, it 
has not yet been estabhshed clearly whether or not Austria to-day could live on 
her own resources. You would doubtless like to hear our own opinion on this 
subject. Allow me then, before answering you, to invite you to make a distinction 
which seems to me to be essential. The Austria of to-day, as constituted at the 
end of the war by the Peace Treaty, left to her fate — well, the latter Austria is 
unable to live and will be unable to live for some time to come. The distressing 
state of our economic life proves it. Torn suddenly from the union with our neigh- 
bouring countries, separated from all the territories which furnish them with 
raw materials, the Austrian people has been obliged to find, little by little, new 
economic foundations ; burdened with a heritage too heavy to bear, they are 
making great efforts to adapt themselves to a new state of things. If foreign help, 

— 22 — 

promised by the covering letter of the Treaty of St. Germain, fails them, and, if, 
as has been lately the case, the task is rendered more difficult — then, gentle- 
men, the new Austria will not be able to live, but if Austria finds the foreign 
help which is indispensable she will be able to hve sooner than might be 
supposed. Austrian agriculture only needs to be intensified. Austria possesses 
a long-established industry which the war and its consequences have deprived, 
till now, of the necessary funds ; she possesses the latent wealth of her hydraulic 
forces, which it has not been possible sufficiently to exploit ; but her greatest 
wealth is her excellent geographical situation, and, above all, her gifted and 
industrious population. To recover from the terrible shocks of the revolution, 
she needs only a little mental peace and normal economic conditions. And allow 
me to lay stress upon one point in this line of thought which is particularly im- 
portant. Austria must be saved from the artificial shackles imposed upon her 
traffic and commerce, shackles which neither the Brussels Conference nor the 
Porto Rosa decisions were able to break. Here not Austria alone but the whole 
of Central Europe is concerned. 

" What is Austria asking from the League of Nations ? The London 
Conference again referred the Austrian problem to the League of Nations, and 
we hope, we pray, that this time it was not with a view to further enquiries, which 
will cause a loss of precious time, but with a view to rapid decisions. In the 
opinion of the most competent financiers, the guarantees which we are able to 
offer after the suspension of the hens in question need the guarantee of all the 
Powers, or at least of several of them, in order to enable us to obtain 
sufficient credits : 

(1) To arrest the rapid decline of our monetary system — a decline 
which makes any budgetary calculations both for the State and for 
individuals impossible and augments from day to day the cost of living ; 

(2) To permit the State to exist during the period of transition 
until the strengthening measures already taken and still to be taken 
have become efficacious ; 

(3) To permit some reduction of officials and to push on the devel- 
opment of her enterprises by means of the necessary funds ; 

(4) To utilise in the future the resources already mentioned, by 
improving agriculture, setting industry upon its feet, exploiting the 
hydraulic forces, and to give to the population a foundation for a cer- 
tain future. 

" We have been assured that the Powers which will participate by their 
guarantee in the work of the economic reconstruction of Austria and the rep- 
resentatives of international capital who will assist financially or with credits 
will continue to exercise a certain control over employment of the credits granted 
and over our general national economy. I will reply with all the frankness 
which our situation demands : 

(1) We admit that such a control is inevitable and natural. 

(2) It is understood that such a control will not affect the sove- 
reignty of Austria ; for it would be harder and more humiliating 
for our people, whilst keeping a semblance of sovereignty, to lose their 
political liberty than once and for all to renounce their independence 
and become part of a great political entity, and so obtain a share of 
sovereignty in that of a great State. 

(3) For this reason we earnestly desire that the control over the 
use of the credits should become effective without delay. There is no 
doubt that dependence, unless it really brings reUef, is humiliating, but 
it would be unreasonable to refuse, simply for reasons of prestige, 
a remedy which would bring about a cure. 

(4) We could not, of course, accept this control unless sufficient 
credits were granted at the same time. For nothing could justify the 
control of an independent State except the real help accorded to her. 

" Gentlemen, I took the liberty at the beginning of my speech of referring 
in a few words to a point which I should like to emphasise. The Austrian problem 
in its present phase is very largely a poUtical problem. I explained to you the 

— 23 — 

financial situation, and I have now shown how difficult it is to separate financial 
from political consideration and how great is the influence which pohtical 
considerations may have upon the practical possibilities and financial solutions. 

" The fact that the Austrian problem, that is, the problem of maintaining 
the independence of Austria, has become a fundamentally political question, 
suggested to me the idea some days ago of visiting some of our neighbours 
to consult them upon this problem. I did not wish to submit the question to the 
League of Nations without reaching an understanding with our neighbours. 
This visit had, however, I frankly admit, another object. The Austrian people, 
rather than perish in isolation, will do everything in their power to make a last 
effort to break the chains which are oppressing and strangling them. 

" It is for the League of Nations to see that this effort does not endanger 
the peace of the world or our relations with our neighbours." 

24 — 



ON SEPTEMBER 6th, 1922 

The Council decided to nominate a Committee instructed to examine 
the Austrian problem as it had been referred to the Council by the Inter-Allied 
Conference of London and as it had just been submitted to it by the Austrian 

The Committee would comprise representatives of the British, Czecho- 
slovak, French, Italian and Austrian Governments. It would be authorised, if 
necessary, to hear the representatives of other countries which might be interested 
in certain aspects of the question ; further, the Council put at its disposal the 
whole of the technical organisations of the League, including economic, financial 
and legal experts. 


In the interval between September 6th and 30th, the Austrian Committee 
of the Council, the Financial and Economic Committees and, in general, the 
technical organisations of the League, worked out, in detail, the scheme ulti- 
mately embodied in the Protocols (see Preface). 

25 — 





(Saturday, September 30ih, 1922, at 3 p.m.) 

President: M. Edwards. 

The President : 

Gentlemen, as you know, the Council has been studying during the last few 
days the question of Austria. 

The Council has informed me that it wishes to make a communication to 
the Assembly on this subject through its Rapporteur, the Right Honourable 
the Earl of Balfour, after which the Austrian delegate will be requested to speak. 

I have no doubt that the Assembly will wish to hear these communications. 

If this is agreed to, I will first of all call upon the Right Honourable Lord 
Balfour, Rapporteur, to address the Assembly. (Applause.) 

Lord Balfour (Great Britain) : 

Ladies and gentlemen, the President has asked me, before we all scatter to 
every quarter of the globe not to meet again in this hall probably for another 
year, to give you such information as is in my power with regard to the work 
which has been done in connection with the great Austrian problem. 

I regret, ladies and gentlemen, not to be able to do what, at one moment, 
I had hoped to do, which is to give an account of a completed transaction, of a 
matter in which all had already been done by the Council of the League to arrange 
the machinery and to make the necessary provision for deaUng with the Austrian 
crisis. Though I am not in a position to give you that completed statement, 
my colleagues on the Council and I myself feel that so much has been done, so 
great has been the progress we have already made, and so important have been 
the stages which we have already passed, that it would have been doing you and 
us an injustice if I did not takethis opportunity of letting you know the broad 
outlines at least of the task which we are in process, I believe, of accomplishing 
and the measure of agreement at which we have already arrived. 

Now, ladies and gentlemen, let me say that, though a complete and detailed 
agreement has not yet been reached, nevertheless the spirit of agreement which 
has reigned over all our deliberations in the Austrian committee of the Council and 
in the Council itself, offer, so far as I can judge, the happiest augury for a final 
and successful issue of our labours. 

This is not the first effort which the League has made at the invitation of the 
Powers to give material and effective assistance to Austria. I think that it was in 
1921 that the first of these efforts was made. We then laid before the world our 
scheme for aiding the Austrian Government to aid itself. An essential part of 
that scheme was the hberation of the Hens which bound certain debts in such a 
manner that they could not be effectively used for Austria's reconstruction. 

Those hens had to be released by a very large number of nations, and when a 
very large number of nations are concerned, separately and individually, in any 
transaction, the length of time which is apt to be taken may well be fatal to the 
best-laid schemes. In this case it was fatal, and by the time the last of these hens 
had been released, the economic condition of Austria had so sunk that no mere 
release of liens, nor even the other assistance given by the Great Powers, was 
sufficient by itself to raise Austria again to the position of a solvent State. 

— 26 — 

We therefore, when we were a second time invited to intervene, found the task 
was one inevitably harder, inevitably more complicated, inevitably requiring a 
novelty of treatment which was not either foreseen or indeed required when we 
first came into touch with this problem. We have to deal with a nation in which 
the currency has undergone the most rapid and the most disastrous depreciation, 
a nation in which production is falling far behind consumption, in which the defi- 
cit is great and is growing, in which there are vast numbers of government 
employees whom it would be difficult to prove were required for the service of the 
State and in which even what were before the war the most productive sources of 
revenue are now not merely no longer sources of revenue but sources of serious 

It will be admitted that the problem, therefore, which we have to face is one 
of very great difficulty. Two things are plain. Austria cannot get on without 
some pecuniary assistance from other nations, or, let me say, without some assist- 
ance from sources outside herself. Austria cannot get on without such assistance, 
and yet such assistance can never be given her, and never will be given her, as 
long as she is in the hopeless condition of national bankruptcy with which she is 
now faced. 

This problem was the one that presented itself to the Council and to the Aus- 
trian Committee of the Council. We felt that there could be no loans to Austria 
without the reform of Austria, while at the same time there could be no reform 
of Austria without loans to Austria. Austria could not recover left to herself by 
her own efforts, and yet who was going to help her ? Who was going to lend her 
money unless there was clear proof that she was herself going to put an end to 
the state of things which had brought her to her present unhappy condition ? 

No loans without reform ; no reform without loans. Those were the two 
principles which we had to consider and which we had, if possible, to reconcile. 

Let me take those two questions in order. Let me take, first, loans and then 
reforms. Do not suppose that the difficulty of loans is the difficulty of finding 
what would ordinarily be called a good security for those loans. A well-governed 
Austria has ample security for loans ; there is no difficulty about that at all. You 
may ask, then, "Why cannot Austria go, like other nations in need of money, 
into the open market and ask the great financial centres of the world to lend 
her financial resources on the securities which she can produce?" The reason is 
the one I have already indicated. No-one will lend to Austria unless Austria can 
produce not only what are called good securities for the loan but some clear 
prospect that the State will be henceforth governed on those sound financial 
principles on which alone the pennanent stability of the State depends, a sta- 
bility without which no wise lender is going to risk his money. 

If it is clear that the private lender will not come forward in the existing 
condition of Austria and lend money simply upon Austrian securities, what is 
the remedy ? There is but one remedy, and that is that other nations should 
supply the guarantees, furnishing that basis of credit which Austria herself is 
incapable of supplying. On that the Council and the Austrian Committee of the 
Council are entirely agreed. Moreover, in the most important respects, I think 
you will admit that we have found a method of carrying out that object. 

Four nations have each agreed that, speaking very broadly, they will take 
twenty per cent each of the total loan required to enable Austria to pay her way 
during the two years which our financial advisers tell us must elapse before an 
equilibrium is arrived at in the Austrian Budget. I do not propose to trouble you 
with the figures to-day, for I am only dealing with the broad outlines of our policy, 
but we may say roughly that something over 500,000,000 gold crowns is what 
Austria, according to the calculation of our experts, needs, in order that she may 
be put on a sound basis. However that may be, and without going into details, 
broadly speaking, the four nations are in agreement that each shall supply twenty 
per cent of the total. 

The four together, again speaking only in round numbers, may be expected 
to guarantee eighty per cent of the total requirements of Austria. That leaves 
twenty per cent undealt with. I am glad to say that we know already that some 
other nations are prepared to contribute towards that twenty per cent, and I 
have great hopes that the whole of the twenty per cent may be fully guaranteed 
when the nations which have money to lend, or are able to guarantee, see the whole 
scope and value of the plan which we propose. I think that gives you a fair 
general idea of the loan side of the plan on which we are engaged — the method 
by which money shall be suppUed by the individual lender on the security of 
various States to meet the needs of the Austrian Government. 

— 27 — 

I now come to the second — the most important, and in many respects the 
most novel — part of the plan that we are carrying into effect. The second part, 
you will remember, dealt with Austrian reforms. That the reforms are required 
no Austrian and no observer of Austrian affairs is likely for one moment to deny. 
Large sums have been contributed to Austria from outside during the last two 
disastrous years, but they have, under the existing system, no more than sufficed 
to enable the Austrian Government to get on somehow or another from day to 
day. They do not contain in themselves the smallest element of permanence ; 
they are unable in the slightest degree to contribute to the permanent establish- 
ment of Austrian credit. 

Now what are the conditions which, in our view, are required for this scheme 
of reform ? In the first place, we are of opinion that, since it is inevitable that 
there shall be some external influence acting in co-operation with the Austrian 
Government, it shall be made quite clear, first to the Austrian people and then 
to the world at large, that no interested motive presides over the action of any 
of the guaranteeing Powers, and that we are all mutually engaged one to the 
other, to the League of Nations and in the face of the world at large, that no 
interference with Austrian sovereignty, no interference with Austrian economic 
or financial independence, shall be regarded as tolerable or possible under the new 
system. We have therefore prepared a very carefully drawn protocol, which 
contains this declaration on the part of the great guaranteeing Powers — I hope 
other Powers will also sign it, but in the first instance on the part of the great 
guaranteeing Powers — that they have no selfish ends to pursue in connection 
with this great effort at reform. That is the first step. (Applause). 

And let me say in that connection that, valuable as I regard this protocol, 
which will be, I trust, signed in a few days, I attach even more value to the fact 
that it will be signed, and that all the negotiations up to its signature will be carried 
out, under the auspices of this League. That is the great guarantee against 
separate interests being allowed to prevail over international interests. (Loud 

I think every Austrian citizen may rest assured that, while undoubtedly 
there must be, under the guidance of the League and through the machinery 
which is going to be provided, a control exercised over the financial policy of 
Austria that can only end in benefit to his country, and that when at the end 
of two years Austria finds herself again a solvent nation, she will be so 
without having lost one shadow or tittle of any of that sovereignty or that 
supremacy over her own affairs which we all desire, and, indeed, are bound, as 
Members of the League of Nations, to preserve. (Applause.) 

The control, therefore, which will be exercised over Austrian policy is a 
control entirely for the benefit of Austria. Of course it is necessary, absolutely 
necessary, if you are to get money from the independent, individual investor. 
At present, any prudent investor looking at the state of Austrian finances, seeing 
how far the expenditure exceeds the receipts, seeing that in every direction 
pubUc money is being lavished and from how few sources adequate public money 
is coming in, will say at once : " You may talk to me of securities, but unless 
the State to which I lend manages its financial affairs better than the Austria of 
to-day, I should be a fool if I did lend." I believe that to be a system under which 
the control, working as it must work if it is to work successfully in daily harmony 
and co-operation with the Austrian administration, will be able to carry out the 
necessary reforms, not without difficulty, not, indeed, without suffering, not, per- 
haps, without for a brief period augmenting the distress which already prevails 
in Austria, but yet in no long time, after no unnecessary interval, bearing fruit 
of incomparable value in the direction of turning Austria again into a self-res- 
pecting, solvent, economically sound community, capable of holding up its head 
among all the nations of the world. 

Therefore, ladies and gentlemen, control is necessary. How do we ensure 
control ? We ensure control, the kind of control and the only kind of control 
which is legitimate but the control which is necessary, by another protocol most 
carefully drawn up by which the Austrian Government and Parliament and people 
will pledge themselves to be partners with us in this great effort at national 

That is, perhaps, as important as any other work on which we have been 
engaged ; and we have been assisted in that work, I am glad to think, by the 
Chancellor of Austria himself, who has taken part in the deliberations of the 
Sub-Committee, whose advice has always been at our disposal, and who has 

— 28 — 

shown himself throughout most clearly appreciative of all the difficulties and 
all the needs of the country of which he is the head. 

Therefore I think you will see that the broad scheme, which I hope will 
be brought to a technical conclusion in a very few days, consists in the main 
of providing this guaranteed loan, of seeing that it is properly expended in Austria, 
and, in co-operation with the Austrian Government, of ensuring that it shall 
only be expended in Austria if, accompanying their expenditure, those great 
reforms are carried into effect which, painful as they may be, are absolutely 
necessary if Austria is ever to recover. 

I hope I have made quite clear the broad outhnes of our plan, because it is 
only the broad outhnes with which I have dealt. But do not suppose that there 
is the least desire or intention of keeping back from the League or from the public, 
to whatever nation they may belong, all'the details and all the data on which 
our conclusions have been based. When we are in a position to feel that we have 
accomplished our task, as I have already told you (and I hope we may begin 
in a very few days), there will be a public seance of the Council, and at that public 
seance all the documents and all the provisions will be made public and the whole 
world will be taken into our confidence. 

In the meanwhile I trust that what I have said may be regarded by most 
of my hearers as giving a sufficient outline — and it is not more than an outline 
— of the policy we are pursuing and the grounds on which we are pursuing it. 
No greater object has ever been presented to the League. In my opinion this 
is the fateful moment for the Austrian Republic. If this scheme goes through, 
as I beheve it will, there is no reason why Austria should not recover herself ; 
there is every reason why she should recover herself, and then there will be 
removed from the map of Europe what is now a blot upon it ; there will be remov- 
ed from the world of commerce and finance what is now a burden rather than an 
assistance to the economic well-being of the world, and we shall have restored to 
self-respect and ultimately — I hope to full prosperity — a country which is 
one of ourselves, and with whom all of us must sympathise. 

But if, on the other hand, which I do not think will happen, either by the 
fault of Austria or by an unhappy accident, this effort of the League of Nations 
should fail, great will be the failure not merely for the League but for the world 
at large. 

We cannot tolerate in our midst these dereUct States, an unhappiness to 
themselves, a danger to their neighbours, and a burden upon the industry of the 
world. If, as I firmly beUeve, we are successful in bringing this great work to 
an issue, the benefits which we shall confer upon others will not be confined 
to the limits of the Austrian Republic ; they will spread far and wide over the 
whole of Europe, and, through Europe, over the world ; and we shall have done 
something really important, really material, and really lasting to remove from 
ourselves the charge that we are unable to deal with the economic difficulties 
of the world, and to remove from the world the heavy burden which those diffi- 
culties are now inflicting upon it. (Loud applause.) 

M. Mensdorff-Pouilly-Dietrichstein (Austria) : 

Ladies and gentlemen, you have just heard from the lips of the man best 
qualified to speak on the subject an accurate description of the present state 
of the ryuestion of granting financial aid to Austria and of the proposed financial 
reforms. I ask your permission to add s few words on behalf of the Austrian 
Government to express our deep and sincere gratitude to the League of Nations 
and especially to the Members of the Council for having undertaken this task, 
which, we sincerely trust, will be brought to a successful conclusion and will 
give our country the prospect of a less anxious and less gloomy future than could 
be anticipated before the League of Nations undertook the responsibility of this task. 

We cannot, however, conceal from ourselves the fact that it will not be pos- 
sible for all the difficulties to be surmounted nor for the anxious problems which 
pre-occupy our Government to be entirely solved. I confess that I had sincerely 
hoped — no doubt like many of the Members of this Assembly — that the end 
of this session of the Assembly would coincide with the signature of an arrangement 
which, without limiting the independence of Austri?, would guarantee her financial 
reconstruction ; such an arrangement, accepted and signed here by the repre- 
sentatives of all the nations which were affording us their friendly assistance. 

— 29 — 

would have borne witness to the fact that the League of Nations had itself taken 
in hand this great reform which was to be carried out under its auspices. 

It has proved impossible to complete this arrangement before the end of the 
Assembly ; but the Council remains in session, and we have every reason to hope 
that it will take cognisance of the agreement which will settle the questions 
under consideration as a whole and not piecemeal. The manner in which this 
task has been accomplished by the eminent statesmen on the Council, who have 
devoted long hours to the study of our financial reform, is our best and surest 
guarantee that this important and difficult undertaking will be crowned with 

Our Government wishes to express here and now its deep gratitude to the 
countries which have already stated that they would give their guarantee for part 
of the loan ; and the Federal Chancellor, Mgr. Seipel, particularly wishes to thank 
most heartily and sincerely the statesmen representing these Powers, who have 
displayed a tireless zeal and an unwearying patience in the study of this serious 
problem, and who have been able to overcome all the difficulties which stood 
in the way of solution. 

The Austrian Committee of the Council has had the good fortune to have the 
Earl of Balfour as its chairman. I need not tell you here how valuable his co- 
operation has been to us ; his authority and his talent have never shone with 
greater effect, and I should like to say personally, as one who has had the advan- 
tage, during many years, of hearing a large number of his most famous political 
speeches in the House of Commons, that I have never felt a warmer or a more 
sincere admiration for him than during these last meetings of the Committee 
in the offices of the Secretariat. {Loud applause). 

Although the closing of the session and the departure of the Members of 
the Assembly make it impossible for a final agreement to be placed before you 
to-day, we confidently expect that this agreement will be concluded and submitted 
to the Council in a very short time — as Lord Balfour has already stated. 

In addition to the four Powers which have already guaranteed four-fifths 
of the loan, a few other countries have promised their assistance, which will be 
welcome. I will only mention one of them : Belgium, to whom we wish to express 
our sincere gratitude for having undertaken to guarantee a portion of the loan. 

We hope that this example will be followed, and that the sympathy which 
has so often been shown to us here will also be expressed in the form of partici- 
pation in the guarantee of that relatively small part of the loan which is not yet 
covered by the guarantee of the four Great Powers to which I have referred. 

As this is the Assembly's last meeting, I do not wish to detain your attention 
longer, but I cannot conclude without repeating, on behalf of the Austrian Federal 
Chancellor, that, when once the agreement is concluded, Austria will lose no time 
in putting into force all the measures which on her side she has undertaken. 
She will do this with energy and determination and will not allow herself to be 
discouraged by criticisms, but will carry out without delay the task which falls 
to her share. (Loud and prolonged applause.) 

The President : 

Although Lord Balfour's announcement is not open for discussion, I believe 
Lord Robert Cecil has expressed the desire to put a question. 

If the Assembly has no objection, I will therefore call upon Lord Robert 
Cecil to speak. (Applause.),, ^ 

Lord Robert Cecil (South Africa) : 

Mr. President and gentlemen, I am sure the Assembly is profoundly grateful 
to the Council for all its efforts in this matter and to Lord Balfour for his efforts 
and for his admirable statement this afternoon. We all hope, and we have 
a right to hope, from his statement, that this great work is going to be successfully 
accomphshed. We welcomed particularly his statement that as soon as a result 
was reached there would be a full exposure of all the facts and documents. The 
only question that I venture to put to him is this : that if, contrary to all our 
expectations and hopes, success were not reached, can the Assembly understand 
that, nevertheless, there would be a full statement and exposure of all the nego- 
tiations leading up to that unhappy result ? 

Lord Balfour (Great Britain) : 

I do not anticipate, any more than Lord Robert Cecil does, the unhappy 
catastrophe to which he made distant allusion. I cannot bring myself to believe 

— 30 — 

that our efforts will end in failure. Nevertheless, he has put to me a direct 
question. He has asked me whether in this very improbable event there will 
still be a Council held in public in the course of which all the documents and 
all the facts will be made pubhc. 

I can assure him that that will be the case. There will be a public meeting 
of the Council, and nothing that we have to reveal will remain concealed. 

The President : 

M. Leon Bourgeois will address the Assembly. 

M. Leon Bourgeois (France) : 

Gentlemen, I thought that this meeting would be devoted solely to Lord 
Balfour's declaration and that no discussion, nor even any questions, would 
follow after the masterly statement of the case which has been presented in so 
complete and detailed a manner by the first British Representative. 

But since a question has been asked, I should like in turn to express very 
simply and in a few words my desire — which must be the desire of all of us — 
that to-day's meeting should not terminate upon a note of doubt or uncertainty, 
but that, on the contrary, it should end on a note of confidence and faith. (Loud 
and unanimous applause.) 

The task to which the Council of the League of Nations has put its hand 
was undertaken with such full recognition of all its duties and obligations, in such 
entire agreement with the Austrian Government, and with such an earnest con- 
viction that its proposals were fully adequate to meet the present needs and the 
sincere and unconditional desires of the Austrian Government, that success 
cannot fail to crown an enterprise undertaken in such a spirit. 

I may add that this undertaking is in conformity with the spirit of the whole 
League of Nations and with the methods employed in other matters discussed 
in this session of the Assembly. 

During those historic discussions on the question of disarmament (in which 
— I hasten to remind you — we had the assistance of Lord Robert Cecil himself), 
and in our discussions on the possibility of an intervention by the League of 
Nations in Eastern affairs, we have laid down principles, established methods 
and indicated Unes of conduct which will henceforth constitute precedents for 
the regular procedure of the League of Nations. Those are the principles which 
have been apphed by the Council of the League and by Lord Balfour, its dis- 
tinguished Rapporteur, on this subject ; and they have been applied with a 
strictness and conscientiousness which could not be exceeded. 

I therefore end my speech as I began it : Let us terminate this session with 
a demonstration of confidence and faith. (Loud and prolonged applause.) 

— 31 



ON OCTOBER 4th, 1922, AT THE 

The Council received from the President of the Conference of the Prin- 
cipal Allied Powers, held in London on August 15th, 1922, a request to study 
the situation in Austria. 

The Council invited the Austrian and Czechoslovak Governments to sit 
on the Council. A Committee, composed of delegates of Great Britain, 
France, Italy, Austria and Czechoslovakia, was asked to prepare the resolutions 
to be submitted to the Council. These proposals have just been received by the 

In accordance with these proposals, the Council approves, with the addition 
of the provisions mentioned below, the scheme submitted — Protocols No. I, 
II with annexes, and III. 

It agrees to accept the duties and responsibilities involved by the proposals, 
and recommends that every State desiring to assist in the reconstruction of Aus- 
tria by taking part in the execution of the scheme should adhere to Protocols 
Nos. I and II. 

The Council invites the Austrian Committee to continue to watch over 
any developments in the situation, in order that it may be in a position to pre- 
sent a report whenever such a step is considered necessary. 

The Committee is asked to nominate without delay the Commissioner- 
General mentioned in Protocols Nos. II and III ; this nomination shall be ratified 
by the Council. It is understood that this Commissioner-General should not 
belong to one of the four Principal Powers taking part in the loan, or to one of 
the countries adjoining Austria. 

The Council, on the proposal of the Guarantor States, which have signed 
Protocol No. II, decides that the presidency of the Committee of Control of the 
Guarantor States shall, as long as the system of control ^ defined in Protocols 
Nos. II and III remains in force, be filled by the Itahan member of the 
Committee, and the vice-presidency by the Czechoslovak member of the 

The French text of the Protocols and annexes shall be the authentic text. 

^ It is understood that the period of control in question does not refer to the special control 
envisaged in paragraph 4 (last line) of Protocol No. III. 

— 32 



(Held on Wednesday, October 4ih, 1922, at 4.30 p.m.). 

Present : All the representatives of the Members of the Council, Dr. Pospisil 
(Representative of Czechoslovakia), Mgr. Seipel and M. Grunberger (Repre- 
sentatives of Austria), and the Secretary-General. 

Lord Balfour (British Empire) said " I was commissioned to give a general 
outline of the scheme we are adopting to deal with the Austrian problem, when 
I spoke to the Assembly on Saturday last. Those who were present will remember 
that I had to admit that the scheme was not then completed in all its details, 
but that a very large measure of agreement had been arrived at. Though the 
prospect certainly gave great hope that we should come to such a successful 
arrangement, that arrangement had not then been reached. I now rejoice to tell 
you that the consummation then doubtfully looked for has now been reached, 
and, whether representing the interests of Guaranteeing Powers or repre- 
senting the League of Nations through its Council, we are all agreed, and all 
the details are now finally settled. 

" Before I attempt again to indicate the character of that arrangement, I 
feel bound to offer my sincere thanks to two groups of people to whose untiring 
energy, patience and tact this happy result is largely due. The first of these is the 
Italian Delegation. Some of the difficulties to which I alluded on Saturday at the 
Assembly were due to points over which there were temporary differences of 
opinion of a very difficult and very technical character which had not been 
completely settled with the Itahan Government. If we have reached, as we have 
reached, a complete and satisfactory arrangement of these subjects, we owe it 
largely to the work of the Marquis Imperiah and his colleagues, who have 
been untiring in their efforts to make perfectly clear the Unes of thought which 
we at Geneva were desirous of pursuing, and who have rendered, I venture 
to say, services which cannot be over-rated with regard to the final agreement 
which has been so happily reached. 

" The other group of persons to whom I should like to pay a tribute is the 
Secretariat of the League of Nations which, at all events, knows the kind of work 
which a crisis Uke this throws upon it. When you have got to carry on 
these compUcated transactions in two languages largely by telegrams which 
arrive at all hours of the night, when you have got to prepare all the papers for 
the frequent meetings which have to be called before these things are finally 
decided, only those who know the amount of labour constantly thrown upon 
them by such an occasion as this are in a position to say how great is the debt 
of gratitude which all owe to the untiring labours which the Secretariat has 

" I say nothing — for I think I hinted at it before — of what we owe to the 
Financial and Economic Committee, without whose advice and without whose 
help we never could have done the work which we now have accomplished. But 
all that you will be able to judge, for the reports which they have made — docu- 
ments of great abiUty carried out by the experts of many countries — will stand 
as a monument to what such investigations should be, and without their aid the 
Sub-Committee of the Council, on whose shoulder the responsibility of all this 
work has mainly rested, could never have carried out the functions entrusted 
to them. 

" You will remember that we were asked by the Supreme Council to undertake 
a solution of a problem to which they, for one reason or another, felt themselves 
unequal, and which they thought — and I hope not incorrectly — might perhaps 
be solved by the machinery of the League of Nations. What was that problem ? 
Generally speaking, we all know it was the economic condition of Austria, but 

— 33 — 

I think that if I venture to read an extract from the report of the Financial Com- 
mittee you will have an idea more authoritative and more precisely expressed in 
words than I could possibly give to you in any abstract of my own. The 
Financial Committee expresses itself as follows : 

" 'Austria has for three years been living largely upon pubhcjand 
private loans, which have voluntarily or involuntarily become gifts, 
upon private charity and upon losses of foreign speculators in the crown. 
Such resources cannot, in any event, continue and be so used. Aus- 
tria has been consuming much more than she has produced. The large 
sums advanced, which should have been used for the re-estabhshment 
of her finances and for her economic reconstruction, have been used 
for current consumption. Any new advances must be used for the pur- 
pose of reform, and within a short time Austria will only be able to 
consume as much as she produces. The period of reform itself, even if 
the new credits are forthcoming, will necessarily be a very painful one. 
The longer it is deferred the more painful it must be. At the best, the 
conditions of life in Austria must be worse next year, when she is pain- 
fully re-establishing her position, than last year, when she was devoting 
loans intended for that purpose to current consumption without reform. 

" ' The alternative is not between continuing the conditions of 
life of last year or improving them. It is between enduring a period 
of perhaps greater hardship than she has known since 1919 (but with 
the prospect of real amelioration — thereafter the happier alternative), 
or collapsing into a chaos of destitution and starvation to which there 
is no modern analogy outside Russia. 

" ' There is no hope for Austria unless she is prepared to endure 
and support an authority which must enforce reforms entaiUng harder 
conditions than those at present prevailing, knowing that in this way 
only can she avoid an even worse fate.' 

" No words could more clearly, more forcibly, or, I would say, more tragi- 
cally express the realities of the tremendous problem with which the League 
of Nations was called upon to deal, and you will observe that it requires every 
possible sacrifice from two parties. In the first place it requires a great effort 
on the part of the Austrian Government itself ; but the Austrian Government, 
whatever its good intentions, whatever its resolution, whatever its courage, would 
be absolutely helpless unless other nations are prepared to come forward and 
use their credit to enable Austria herself, by her own efforts, with this assistance, 
to extricate herself from the appalling position which the extract I have just 
read reveals to you in such expressive words. 

"As I said on Saturday, there are two things which have to be done. Austria 
must reform herself. Other nations must provide credit in order that Austria can 
reform herself, and the difficulty, the essential difficulty of the whole thing is 
this : How are you going to arrange a system under which people will be pre- 
pared to lend their money to Austria in the position which I have just described? 
How are you going to get Austria, unless you lend her money, to start upon 
the precipitous but not wholly impossible track which we are expecting her 
to climb over these mountains of economic difficulty? Many of our problems 
have necessarily been concerned with arranging for the system of credits, of 
guarantees to be given, in order to enable Austria to draw upon the private 
lender throughout the world. They are complicated, they are difficult. You will 
perhaps be content when I say that all these essential details are contained in 
a three formal protocols ^ which will be signed to-day, that those protocols will be in 
the hands of the public. The Guaranteeing Powers, as you know, are, in the first 
place, the large guarantors, France, Italy, Czechoslovakia and Great Britain. 
They are going to guarantee, roughly speaking, four-fifths of the sum required. 
Outside the Umits of those four Powers, we know we are going to get some sup- 
port from other nations, though we do not yet know the limits of that support, 
but I have every hope that the fifth, or what is approximately the fifth, of the 
whole sum required will be obtained from these additional sources of supply. 

"Now, that being the general aspect of the question looked at from the point 
of view of those who are providing the guarantees for the money, let me des- 
cribe the subject from the point of view of Austria and of the League of Nations. 
How is the expenditure of this money to be regulated? You have just heard from 

' See pages 39 to 47. 

— 34 — 

the extract I read from the report of the Financial Committee that much 
of the money which many nations have given to assist Austria has really had 
no effect except that of temporarily postponing the evil day of national ruin and 
bankruptcy. How are we going to see that the loans which we are prepared to 
guarantee receive a better fate ? The machinery consists of three parts. I men- 
tion them not in their order of importance, because they are all vitally important. 
The first I would mention is the Committee of Guaranteeing Powers. We have 
felt that the nations which supply these guarantees must have some say in the 
broader questions of finance which the subject necessarily involves, and we have 
provided a scheme by which the guaranteeing nations shall constitute a com- 
mittee of control, which shall be kept carefully informed of all that is going 
on, and which shall, on certain broad aspects of the problem of raising the 
money, be able to give its opinion and to see that no injury is done to the lender. 

" I turn from the lender to the Power to which the money is to be lent and to 
the position which the League of Nations is going to occupy in seeing that that 
money is spent for the reform and rehabilitation of Austria itself. That task throws 
a great responsibility upon the Austrian Government. The Austrian Government 
is fully conscious of all the weight of that responsibility. It knows well that 
it, more than anybody else, will, in the near future, be master of its own 
fate. The last thing that we desire to do is to interfere in the slightest degree 
with Austrian independence or Austrian sovereignty, and we have indeed formally 
entered into an arrangement amongst ourselves — amongst the guaranteeing 
nations, to which I hope many other nations will subscribe — we have entered 
into a solemn arrangement which will be laid before you in one of the three pro- 
tocols which will be signed to-day. We have arranged that none of us is to ex- 
tract any separate advantage or interfere in the smallest degree with the series 
of elaborate transactions which I am endeavouring to describe. Austria evidently 
must, on her side, enter into effective pledges to carry out the reforms which 
are absolutely necessary. Those reforms are going to be no easy task. It will 
not be a smooth path that the Austrian Government will have to pursue in the 
immediate future, though it is one at the end of which every success is likely to 
be reached. The Austrian Government owes it to the League of Nations, it 
owes it to the Guaranteeing Powers, to give effective assurances that, so far as 
it is concerned, it will carry out these reforms, however difficult they may 
seem in the immediate future, and will thus gain not only prosperity for itself 
but earn the confidence of those who collaborate with it. 

" Now I am not going to describe at length the pledges Austria has given, or 
the poUcy she has promised to pursue, but I will read one paragraph from the 
third protocol, which indicates in the clearest manner its tenor and importance : 

" The Austrian Government will forthwith lay before the Austrian 
Parliament a draft law giving, during two years, to any Government 
which may then be in power, full authority to take all measures, within 
the limits of this programme, which, in its opinion, may be necessary to 
assure at the end of the period mentioned the re-estabhshment of 
budgetary equilibrium without there being any necessity to seek 
further approval by Parliament." 

" You will observe how far-reaching that promise is, for it gives the Austrian 
Government once and for all, during the two years, not only the right but the 
power to see that the series of reforms necessary again to make Austria a solvent 
and economically sound community are carried out. That indicates the part 
which Austria is going to play in this great drama. 

"Now let me say what the League of Nations is going to do. 

" The duty of the League of Nations will be to appoint a High Commissioner 
who shall, in conjunction with the Austrian Government, in constant intercourse 
with it, be responsible to the League of Nations, and who will work for the general 
policy of economic reform, on which the future of Austria depends. The con- 
clusion of the Financial Committee is that in two years, if these reforms are 
carried out, the Budget of the Austrian Government will be in equilibrium. I 
have just described to you how difficult the task is, but that task will surely 
be capable of accomplishment if the High Commissioner appointed by the 
League, with all the authority of the Powers, and, above all, with the dis- 
interestedness which that position involves, is able, by constant intercourse with 
the Austrian authorities, to insist that this programme of reform shall be effec- 
tively accomphshed. That gives you, in very rough outline, the great lines of 
a scheme which surely is not lacking in true statesmanship. It may fail, some 

— 35 — 

part of its machinery may break down, but I hope for better things. I am con- 
fident that no scheme more hkely to succeed could have been evolved. If you had 
asked me two or three weeks ago whether I thought any scheme so well appor- 
tioned, so well suited to carry out its purpose, or expressing in the circuit of one 
coherent plan both the lending Powers of the world, the administrative powers 
of the League of Nations, and the method of bringing those two into full and 
close harmonious co-operation with the Government of Austria — if someone 
had said can you devise such a scheme, I should have expressed the gravest 
doubts. But the work has been accomplished. I do not think, whatever the 
result may be, that the League of Nations need be ashamed of the work it has done ; 
but, after all, it is not of the League that I am thinking so much as of the future 
of Austria. We all have in view her rehabiUtation, and I am certain that if the 
Austrian people and Government will throw themselves wholeheartedly into 
the work of carrying out this important, difficult, but necessary reform, the 
result will be that Austria, who has been a Member of the League for only a few 
days more than a year, will feel that she has looked to her sister nations, and 
has looked to them not in vain. I feel certain that she will on her side carry out 
the noble though not easy task which we are throwing upon her and that she 
will take the full advantage of all the liberaUty of the Guaranteeing Nations, 
of all the administrative capacity we can place at her disposal, and of all those 
instruments of rehabiUtation which together will place her among her sister 
nations, in a position of prosperity, of solvency and of self-respect, and enable 
her to become again a great factor in European civiUsation. " 

M. Hanotaux (France) said : " I was authorised by the Government of 
the French RepubUc to adhere, on its behalf, to the draft Convention submitted 
to the Council by its Sub-Committee. In complete agreement with the British, 
Italian and Czechoslovak Governments, and with the other Governments which 
joined in guaranteeing the international loan for the reconstruction of Austria, 
the French Government adheres to the whole scheme on which this guarantee 
has been based, and rejoices in the success of the work which, on its initiative, 
has been entrusted to the League of Nations. 

" In spite of the heavy burdens which France has to bear, she has no intention 
of avoiding any of her obligations in the cause of European solidarity. She 
hastens to offer her assistance to a country the historical past of which has been 
so intimately linked with her own, in order to allow that country to escape from 
its present embarrassments, and by its own effort, and in full independence, to 
enjoy a happier future. 

" Above all, it is the wish of France to help towards the maintenance in Central 
Europe of stabihty and peace. This is her chief aim here, as everywhere ; and 
whenever peace is threatened by any danger, France will work to remove that 
danger. In the midst of a new Europe, based upon the Treaties of Peace, 
France will always assist in enabling the nations to enjoy that tranquillity 
which is their sole desire. The League of Nations is an organisation specially 
devoted by its founders to the realisation of this unanimous desire, and the 
Government of the French RepubUc, which has from the first seen in the League 
a triumph for the victory of justice, has given the League its full confidence 
and its most sincere co-operation in the carrying out of its mission. 

" The French Government rejoices particularly in the spirit of harmony and 
conciliation which has prevailed throughout the difficult negotiations which 
to-day have come to an end. Of all the work accompUshed by the League of 
Nations, this is perhaps the most important, since it is based upon the deepest 
sentiments of humanity and will have the greatest effect on history. 

" I have received authority from my Government to adhere to and to sign 
the Convention. It only remained for me to thank all those who have helped 
the Austrian Sub-Committee : technical experts, secretaries and all the staff 
whose work has been so intensive during the whole period." 

The Marquis Imperiali (Italy) said : " I am particularly glad to be able to 
state, on behalf of the Italian Government, that Italy adheres to the agreement 
now before the Council. 

" The situation of Austria is extremely serious, and she could not have been 
saved without the generous efforts of all the countries which are most concerned 
not only with the future prosperity of Austria but also with that of Europe 
and of the whole world. 

— 36 — 

" It was inevitable that my country should feel keenly the sacrifices attendant 
upon this effort in view of her heavy financial responsibility, Italy being one 
of the countries which has suffered most severely from the war. 

" Italy, however, attaches so great an importance to the independence and 
vitaUty of Austria that she has thought it her duty to accept this fresh 

" The whole world must be struck by this example of Christian solidarity 
between nations which, after being divided by the passions of war, are to-day 
affording one another a cordial and brotherly assistance. 

" I wish to thank my colleagues most sincerely for having waited three days 
in order to announce the result of our work. The brief delay involved has not 
been without its uses. The modifications in the scheme which I requested on 
behalf of my Government have been accepted in a fine spirit of conciliation, and 
have helped to make more harmonious the collaboration between the Govern- 
ments concerned and the organisation set up by the League of Nations. This 
is a great guarantee of the success of the scheme, and experience will afford 
additional proofs of its utihty. 

" No outside assistance can be efficacious without an heroic effort on the part 
of the Austrian people themselves. In this effort, the Italian Government 
and the Italian people give their full sympathy to Austria. It will also be ne- 
cessary in the future to strengthen the financial measures contemplated by a 
series of economic provisions for the re-establishment of the normal life of the 

" The reconstruction of Austria is the first problem of world importance which 
the League of Nations has been called upon to solve. I hope that the assistance 
thus given, which fully respects the national dignity and sovereignty of Austria, 
may be a happy augury for the future of the League, of which Austria is a Member, 
with the same rights and the same duties as the other Members. 

" In my long career, I have had the honour of signing many international 
Acts, some of which have been of great importance. I wish to state that, in 
putting my signature to this agreement in my capacity as representative of the 
Government of the King of Italy, I am thoroughly conscious of serving the cause 
of peace and of co-operating in the great work for the reconstruction of Austria. " 

Dr. PospisiL (Czechoslovakia) said : " M. Benes has requested me to express 
his deep regret at his inabiUty to assist personally in the last stages of the work 
of the Austrian Committee of the Council, and, in particular, at his absence at 
the meeting which marks the completion of the work. 

" The Czechoslovak Government has followed with the greatest interest the 
Committee's efforts to reach a solution of the Austrian problem, and it accepts 
that solution with the greatest satisfaction, since, in the view of my Government, 
the solution is in harmony with the principles which have inspired the policy 
of my Government since the foundation of the Republic, with regard both to 
the general problem of European reconstruction and, in particular, to the financial 
reconstruction of Austria. 

" The principles which have guided Czechoslovak poUcy in these problems 
can be summed up in the idea of ' moral disarmament ' which has dominated 
the discussions, during the third Assembly, on the question of disarmament. 

" Czechoslovakia holds that the League of Nations is the only body which 
can carry out a work of this nature and importance, involving the collaboration 
of a great number of Governments, of the Austrian people and of the Austrian 
Government, which, thanks to the methods employed, will retain its full 

" I hope that the unanimous spirit of solidarity and good-will which has guided 
the Austrian Committee will be maintained during the period of execution, and 
will allow of success in the difficult work which remains to be done. 

" The Czechoslovak Government is convinced that the Austrian Government, 
which has itself taken part with so much ability in the work of the Committee 
and also the Austrian people as a whole, will co-operate in the most loyal and de- 
voted fashion in the general effort." 

M. Adatci (Japan), having been invited by the President to speak, recalled 
the fact that the Japanese Delegation had for many weeks followed with the 
greatest interest the developments in the important question of Austria. Japan 
was a distant country, and was herself at the moment undergoing a serious 

— 37 — 

ecenomic and financial crisis. But public opinion in Japan had followed, and was 
continuing to follow, this question with anxiety and interest. He was thus 
certain that he would relieve the anxieties of his Government and of the public 
opinion of his country by letting his Government know by telegram of the happy 
conclusion of this work, which was necessary not only for the reconstruction of 
Europe but also for the peace of the whole world. 

For these reasons, he was glad to be able to express, on behalf of his Govern- 
ment, the most complete satisfaction at the result of the Council's work. 

M. QuiNONEs DE Leon (Spain) stated that Spain viewed with greatest 
sympathy the work of the League of Nations for the reconstruction of Austria, 
and was considering the possibihty of herself co-operating in the execution 
of the work. For reasons outside his control, he had only been able to inform his 
Government of the scheme at a date too recent to allow of a decision being taken 
before the meeting of the Council. 

The well-known sympathy of Spain for Austria rendered needless any insistence 
on the value of the scheme now before the Council. He had not failed, however 
to point out to his Government its great importance and its practical utility 
for the reconstruction of Austria. 

M. Hymans (Belgium) associated himself with the views expressed by all 
the other Members of the Council. The League of Nations had just accomplished 
a great work, and he wished it every success. As the Council was aware, the 
Belgian Government, despite the heavy burdens which it had to bear, had decided, 
in a spirit of international co-operation, to join in the work and to offer its own 
guarantee within the limits of its capacity. 

M. Tang Tsai-Fou (China) adhered entirely to the arrangement submitted to 
the Council for the reconstruction of Austria. He was not yet aware whe her his 
Government would be able to take an effective part in the financial side of 
the question, but he was empowered to assure the Council of the moral support 
of his Government, since his country fully sympathised with the cause of the 
people of Austria. He could therefore state that China fully associated herself 
with the noble work which the League of Nations had just undertaken. 

Mgr. Seipel (Austria) said : " On September 6th I appeared before you, the 
Council of the League of Nations, in order to lay before you the anxieties, doubts 
and needs of Austria. Anxiety compelled me to ernphasise the doubts which 
filled the minds of many of our people, when the London Conference, finding 
that it was unable itself to afford the guarantees for the economic reconstruction 
of Austria, again referred our cause to the League of Nations. 

" The League of Nations took a great step forward when you, gentlemen, 
appointed the Austrian Committee, of which, besides Austria herself, only such 
Powers were members as were prepared from the outset not only to help us, 
but also to admit all other States to a share in their activities, and who, moreover, 
were not inspired by the ambition to act entirely on their own authority, but, 
preferring to act under the direction of the League of Nations, thereby ensured 

" The Austrian Committee needed time for its work. It needed more time 
than the anxious impatience of the Austrians, who feared for the existence of their 
country, were prepared to allow ; the time expended was, however, short in the 
opinion of those who, taking an active part in the negotiations, came to learn 
the number and magnitude of the difficulties to be surmounted. When, on this 
occasion, we appeared before the League of Nations, we were firmly resolved 
not to go away until the relief work for Austria was organised, either by the League 
or, faihng that, without its help. Thank God we can say to-day : The League 
of Nations has not failed us ; the great idea lives — • the idea that a Supreme Court 
exists, composed of members of the nations themselves ; a court which, when 
a people is in such dire need that it cannot help itself, will effectually call upon 
the others to help, and which will perhaps by so doing unostentatiously relieve 
the world of burdens laid upon it by the sins of the past. Yes, this great idea 

" The success on which the League of Nations can congratulate itself to-day 
is due to the untiring perseverance with which all those to whom it has entrusted 
the task have worked for the Austrian cause. It was a great pleasure to me to 
be present at some of the meetings of the Council and to have an opportunity 
of witnessing the zeal of its Members and the efficiency of its methods. To 
watch the Austrian Committee at work under the chairmanship of Lord Balfour 

— 38 — 

roused my highest admiration as a public man, and the results it has achieved 
fill my Austrian heart with gratitude. I wish to express the profound gratitude 
of my country to all the eminent men who, in the Council or at the Assembly, 
in the Austrian Committee and in the Secretariat and the various permanent 
committees of the League of Nations, have worked for the solution of the prob- 
lem we have submitted to them. I earnestly hope, for their sakes and ours, 
that the scheme they have worked out in the course of these weeks will soon become 
a living reality and an established fact. 

" It is mainly for we Austrians to make this work of the League live. We 
beg you to believe that we are prepared for action. In accordance with the 
institutions of a democratic State, I shall, on my return, have to give an account 
of every word I have said, every promise I have made, every obligation I have 
undertaken. There will probably be a few weeks of sharp opposition. If you 
hear anything of the kind, do not be surprised, do not draw wrong conclusions. 

"The scheme for the economic reconstruction of Austria, which has been 
drawn up by the League of Nations and the Austrian representatives in closest' 
collaboration, imposes solemn responsibilities on all parties, including the League, 
the States called upon to furnish a special financial guarantee, and on Austria 
herself. In approving this scheme, I am fully aware of the great and heavy 
demands I shall have to make upon my Government, the Austrian Parliament 
and upon all classes of the Austrian people. But I am not deterred by doubts ; 
and I beg you, too, gentlemen, to lay aside all doubts ; Austria will not fail 
to make every sacrifice she considers necessary. For even if a Government 
should lack the courage to carry out unreservedly all the obligations we have 
undertaken here, the Parliament will be stronger, and will, in case of need, 
appoint another and a better Government, since it will assuredly not undertake 
the responsibihty of rejecting the promise of salvation now held out to Austria 
by the League of Nations — and behind the Parliament stands the whole Aus- 
trian people. This people demands to live, it claims to fill its appointed place 
in the great family of peoples, and will therefore not shun the sacrifices without 
which no assistance, however wiUingly given, is of any avail. 

" How we shall rejoice, gentlemen, when, in a few years' time, an Austrian 
chancellor can again appear before the League of Nations or its Council and say : 
' Austria is rehabihta ted, her economic administration is sound, her people are 
living, if not in affluence, at least not in crushing poverty; Austria has proved 
that she can manage her own affairs. You may now set her free from financial 
control. ' 

" That will be a glorious day for Austria, and not less glorious for the League 
of Nations." 

The President wished, before declaring the session at an end, to express 
his profound satisfaction that the current session of the Council had closed in 
such a striking act of international solidarity. This satisfaction was all the 
greater when compared with the general apprehension which existed only a few 
days ago, and with the spirit of discouragement which existed in Austria itself. 
The Council rejoiced at the solution which had been obtained and wished Austria 
the return of that prosperity which was due to her after her long and painful 
period of distress. 

— 39 — 


[Translation. J 


The Government of His Britannic Majesty, the Government of the 
French Republic, the Government of His Majesty the King of Italy, 
AND THE Government of the Czechoslovak Republic, 

Of the one part, 

At the moment of undertaking to assist Austria in her work of economic 
and financial reconstruction. 

Acting solely in the interests of Austria and of the general peace, and in 
accordance with the obligations which they assumed when they agreed to become 
Members of the League of Nations, 

Solemnly declare : 

That they will respect the political independence, the territorial integrity 
and the sovereignty of Austria ; 

That they will not seek to obtain any special or exclusive economic or 
financial advantage calculated directly or indirectly to compromise that inde- 
pendence ; 

That they will abstain from any act which might be contrary to the spirit 
of the conventions which will be drawn up in common with a view to effecting 
the economic and financial reconstruction of Austria, or which might prejudi- 
cially affect the guarantees demanded by the Powers for the protection of the 
interests of the creditors and of the guarantor States ; 

And that, with a view to ensuring the respect of these principles by all 
nations, they will, should occasion arise, appeal, in accordance with the regula- 
tions contained in the Covenant of the League of Nations, either individually 
or collectively, to the Council of the League, in order that the latter may consi- 
der what measures should be taken, and that they will conform to the decisions 
of the said Council ; 

The Government of the Federal Republic of Austria, 
Of the other part. 

Undertakes, in accordance with the terms of Article 88 of the Treaty of 
St. Germain, not to alienate its independence ; it will abstain from any nego- 
tiations or from any economic or financial engagement calculated directly or 
indirectly to compromise this independence. 

This undertaking shall not prevent Austria from maintaining, subject to 
the provisions of the Treaty of St. Germain, her freedom in the matter of customs 
tariffs and commercial or financial agreements, and, in general, in all matters 
relating to her economic regime or her commercial relations, provided always 
that she shall not violate her economic independence by granting to any State 
a special regime or exclusive advantages calculated to threaten this independence. 

The present protocol shall remain open for signature by all the States which 
desire to adhere to it. 

In witness whereof the undersigned, duly authorised for this purpose, have 
signed the present Declaration (Protocol I). 

Done at Geneva in a single copy, which shall be deposited with the Secre- 
tariat of the League of Nations and shall be registered by it without delay, on 
the fourth day of October, one thousand nine hundred and twenty-two. 

(Signed) BALFOUR. (Signed) SEIPEL. 


I krCmAr. 


40 — 



With the object of assisting Austria in the work of her economic and financial 
restoration, the British, French, Italian, Czechoslovak and Austrian 
Governments have by common consent drawn up the following provisions : 

Article 1. 

Tlie Austrian Government may create, under the guarantee resulting from 
the present Convention, the amount of securities necessary to yield an effective 
sum equivalent to not more than 650 millions of gold crowns. The capital 
and interest of the securities so issued shall be free from all taxes, dues or charges 
for the benefit of the Austrian State. 

Article 2. 

The expenses of issue, of negotiation and of delivery, shall be added to the 
capital of the loan as fixed under the preceding article. 

Article 3. 

The service of the interest and amortisation of the loan shall be assured 
by means of an annuity provided by the revenues assigned as security for this 
loan in accordance with the provisions contained in Protocol No. III. 

Article 4. 

The yield of the loan may not be employed except under the authority of 
the Commissioner-General appointed by the Council of the League of Nations 
and in accordance with the obligations contracted by the Austrian Government 
and set out in Protocol No. III. 

Article 5. 

The British, French, Italian and Czechoslovak Governments, without prejudice 
to action by other Governments which may accede to the present Convention, 
undertake to ask without delay from their Parliaments authority to guarantee 
(subject always to the approval by the Austrian ParUament of Protocol No. Ill, 
and to the voting by that Parliament of the law contemplated in Article 3 of 
the said Protocol) the service of the annuity of this loan, up to a maximum of 
84 per cent., to be shared under special arrangements between the parties con- 

Article 6. 

Each of the four Governments shall have power to appoint a representative 
on the Committee of Control, the functions of which are determined by the pro- 
visions set out below. Each such representative shall have twenty votes. Those 
Governments which may agree to guarantee the remainder of the annuity which 
is not covered by the guarantee of the British, French, Italian and Czechoslovak 
Governments, shall in like manner have power either to appoint one represen- 
tative each, or to agree among themselves to appoint common representatives. 
Each representative shall have one vote for every 1 % guaranteed by his Gov- 

— 41 — 

Article 7. 

The method of application of the guarantee, the conditions of the loan, 
the issue price, the rate of interest, the amortisation, the expenses of issue, of 
negotiation and of delivery, shall be submitted for the approval of the Committee 
of Control constituted by the guarantor States. The amount of the annuity 
necessary for the service of interest and amortisation of the loan shall likewise 
be approved by the Committee of Control. Every loan proposed by the Aus- 
trian Government, and not faUing within the conditions of the programme 
contemplated in Protocol No. Ill, shall first be submitted for the approval 
of the Committee of Control. 

Article 8. 

The Committee of Control shall determine the conditions under which the 
advances by the Governments should be effected in the event of the guarantee 
coming into operation, and the method of repaying such advances. 

Article 9. • 

Within the limits fixed by the contracts under which they are issued, the 
Austrian Government shall have the right to effect conversion of the loans with 
the consent of the Committee of Control ; it shall be obhged to exercise this 
power on the request of the Committee of Control. 

Article 10. 

The Committee of Control shall have the right to require the production 
of periodical statements and accounts and any other information urgently 
needed in regard to the administration of the revenues assigned as security ; 
it may bring to the attention of the Commissioner-General any administrative 
changes and improvements calculated to increase their productivity. Any 
changes in the rates producing such revenues which might be such as to reduce 
their minimum total yield, expressed in gold, as this may be determined before 
the issue of the loans in order to provide the necessary annuities, shall first be 
submitted for the approval of the Committee of Control. The same rule shall 
apply to proposed contracts for the concession or farming out of those revenues. 

Article 11. 

In case the yield of the assigned revenues should be insufficient and should 
involve a possibihty of bringing into operation the guarantee of the Governments, 
the Committee of Control may require that other revenues sufficient to meet 
the service of the annuity shall be assigned as security. 

Any draft instrument or contract which is likely materially to change the 
nature, condition or administration of the pubUc domain of Austria shall be 
communicated to the Committee three weeks before the instrument becomes 

Article 12. 

The Committee of Control shall meet from time to time at such .dates as it 
may itself determine, preferably at the seat of the League of Nations. It shall 
communicate only with the Commissioner-General, who shall be present or 
shall be represented at the meetings of the Committee of Control. The decisions 
of the Committee shall be taken by an absolute majority of the votes present ; 
provided always that a majority of two-thirds of the votes present shall be 
required for any decisions under Articles 7 and 8. 

An extraordinary meeting of the Committee of Control shall be convened 
on a request supported by not less than ten votes. 

— 42 — 

Article 13. 

The Committee of Control, or any one of its members, may demand any 
information or explanations as to the elaboration and the execution of the pro- 
gramme of financial reform. The Committee may address any observations 
or make any representations to the Commissioner-General which it recognises 
to be necessary to safeguard the interests of the guarantor Governments. 

Article 14. 

In the event of abuse, the Committee of Control or any guarantor State 
may appeal to the Council of the League of Nations, which shall give its decision 
without delay 

Article 15. 

In the event of any difference as to the interpretation of this Protocol, the 
parties will accept the opinion of the Council of the League of Nations. 

In faith whereof the undersigned, duly authorised for this purpose, have 
signed the present Protocol. 

Done at Geneva in a single copy, which shall be deposited with the Secretariat 
of the League of Nations and shall be registered by it without delay, on the fourth 
day of October, one thousand nine hundred and twenty-two. 

(Signed) BALFOUR. (Signed) SEIPEL. 




rm'-fDRifv.^ ri ^5- 

— 43 --^ 


f Translation./ : v 

• -■•.<:/•- : PREAMBLE..;...; -.^, .. ., .-...^. ... ,, .^. ^^^^ 

1. The guarantee granted by the States signatories of Protocol No. II shall 
be employed for an Austrian loan of 650 million gold crowns, bonds for which 
shall all be of the same character and shall offer the same security, the Financial 
Committee having calculated that the Austrian deficit needs to be increased 
from 520 to 650 million gold crowns so as to take into account the advances 
made by certain Governments in the course of this year, which carry the 
right to repayment either from the proceeds of the loan organised by the 
League of Nations, or in securities enjoying the same guarantees and the same 

2.. In order, however, that the advances which may result from the guarantee 
of that part of the Austrian loan which should be devoted to the repayment 
of advances already made may not devolve on States not interested in this repay- 
ment, and in order that the sacrifices which may ultimately have to be asked 
of those States should not be greater than those which would be entailed in the 
guarantee by them of a loan of 520 milhon gold crowns, the Governments entitled 
to repayments from the Austrian Government (the British, French, Italian and 
Czechoslovak Governments) have laid down the provisions which form the subject 
of Annex. B. . ^^yvib J -.A? 


The French, Italian and Czechoslovak Goyefnmehts undertake to assign for 
the guarantee of the issues of Treasury bonds or similar Treasury operations, 
guaranteed by the gross receipts of the Customs and tobacco monopolies and 
envisaged in the report of the Financial Committee ior the period previous to 
the Vote by the various Parliaments of authority lor, the guarantees, the balance 
of the advances promised in 1922 to the Austrian Government, the total amount 
of which was fixed at 

France 55 million francs. 

Italy 70 million lire. 

Czechoslovakia 500 million Czechoslovak crowns. 

By the word "balance" should be understood not only the sums not yet 
paid in respect of the above totals, but those which, having been paid, might 
be capable, by reason of their present employment, of being liberated for a different 
use with the consent of the Austrian Government. As soon as this has been 
obtained, the balances, as here defined, should be placed without delay at the 
disposal of the Austrian Governmentrto be utilised — under the authority of the 
Commissioner-General or of the Provisional Delegation of the Council — in the 
Treasury operations referred to above. 

As soon as the legislation voted by the various ParUaments authorising 
guarantees shall have obtained a total of at least 80 %, the balances of the advances 
thus utilised as guarantees shall be liberated and reimbursed to the Governments 

Done al Geneva on October the fourth, one thousand nine hundred and 

(Signed) BALFOUR. 



f krCmAr 



The apportionment of the guarantee between the four Governments, British, 
French, Italian and Czechoslovak, provided for in Article 5 of Protocol II and 

— 44 — 

paragraph 2 of the preamble, shall take place in accordance with the following 
provisions : 

(1) The guarantee of the annuities corresponding to the sum of 130 miUions 
required for the reimbursement of the advances referred to in the first paragraph 
of the preamble, shall be apportioned as to one-third to each of the British, French 
and Czechoslovak Governments. 

(2) With regard to the sum required for the reimbursement of the Czecho- 
slovak credit, amounting to about 80 million gold crowns, the Czechoslovak 
Government undertakes to limit to 60 million gold crowns the total of the reim- 
bursement which it will have the right to claim from the proceeds of the loan. 
It will accept in payment of this share of 60 millions, bonds of this loan issued 
over and above the total of the effective subscriptions. With regard to the balance 
of this claim, it will be satisfied that it should be covered by securities in Czecho- 
slovak crowns and enjoying the same rights and guarantees as the bonds of the 
loan, but it is understood that these securities shall not benefit by the guarantee 
of the other Governments, and may be issued in excess of the sum of 650 milhons. 

The British and French Governments, which are entitled, by the terms of 
their contracts, to complete reimbursement of the amount of their advances 
out of the proceeds of the first loan, accept a scale of progressive repayment, 
charging the larger part of the repayment on the later instalments of the loan. 

Italy shall have the right of reimbursement out of the proceeds of the loan, 
in accordance with a scale of payment identical with that adopted for the 
Enghsh claim, on that part of its advance which shall not have been repaid after 
having been utilised in accordance with the terms in Annex A. In the case of 
the guarantee coming into force, Italy shall, in respect of the guarantee of the 130 
millions, be responsible only for the liability appertaining to that part of the 
annuity of the loan which corresponds to the total. 

To the extent to which Italy shall thus be led to assume a portion of the 
guarantee of the 130 miUions, the share of the guarantee borne by France, Czecho- 
slovakia and Great Britain shall be correspondingly diminished. 

Done at Geneva, the fourth day of October, one thousand nine hundred and 

(Signed) BALFOUR. 




From a comparison of Article 5 of Protocol No. II (which fixes at a maximum 
of 84% the guarantee to be given by the four Governments and to be apportioned 
as may be arranged) with the Preamble and with Annex B, it follows : 

That each of the four Governments undertakes to guarantee 20% of the 
annuitv corresponding to the capital of the loan floated to meet the deficit of 
520 millions ; 

That the apportionment of the guarantee for the remainder of the annuity, 
which corresponds to the difference (130 millions) between the total of 650 and 
this sum of 520 millions, will be made in accordance with Annex B. 

(Signed) BALFOUR. 


Geneva, October 4th, 1922. 

— 45 



The undersigned, acting in the name of the Austrian Government, and 
duly authorised for this purpose, declares that he accepts the following obliga- 
tions : 

(1) The Austrian Government will ask its Parliament to ratify the political 
declaration signed by it which is the subject of Protocol No. I. 

(2) The Austrian Government will, within one month, in collaboration 
either with the Commissioner-General, whose functions form the subject of para- 
graph 4 below, or with such provisional delegation of the Council of the League 
of Nations as may be appointed for the purpose, draw up a programme of reforms 
and improvement, to be realised by stages and designed to enable Austria to 
re-estabhsh a permanent equilibrium of her budget within two years, the general 
outline of which is defined in the report of the Financial Committee (Annex). 
This programme must place Austria in a position to satisfy her obligations by 
the augmentation of her receipts and the reduction of her expenditure ; it will 
exclude any recourse to loans except under the conditions determined by it ; 
it will prohibit, by the terms of the statutes to be drawn up for the Bank of Issue, 
which is to be created, any further monetary inflation. 

It should further enable Austria to assure her financial stability on a perma- 
nent basis by a series of measures leading to a general economic reform. The report 
of the Economic Committee dealing with this aspect of the problem shall be duly 
communicated to the Commissioner-General. 

It is understood that, if the first programme should appear in practice to 
be insufficient to re-estabUsh permanent equilibrium of the budget within two 
years, the Austrian Government will be bound, in agreement with the Commis- 
sioner-General, to introduce therein the modifications appropriate to the result 
which it is essential to attain. The Austrian Government will ask its Parliament 
to approve the above-mentioned plan. 

(3) The Austrian Government will forthwith lay before the Austrian Par- 
liament a draft law giving, during two years, to any Government which may 
then be in power, full authority to take all measures, within the limits of this 
programme, which in its opinion may be necessary to assure at the end of the period 
mentioned the re-establishment of budgetary equilibrium without there being 
any necessity to seek for further approval by Parliament. 

(4) Austria accepts the nomination by the Council of the League of Nations 
of a Commissioner-General who shall be responsible to the Council and remov- 
able by it. His functions are defined in broad outline in the report of the 
Financial Committee. 

His duty will be to ensure that the programme of reforms is carried out 
and to supervise its execution. The Commissioner-General shall reside at Vienna. 
He may provide himself with the necessary technical personnel. The expenses 
of the Commissioner-General and of his office shall be approved by the Council 
and supported by the Austrian Government. The Commissioner-General shall 
present monthly to the Council a report upon the progress of the reforms and the 
results achieved. This report shall be communicated without delay to the mem- 
bers of the Committee of Control. 

The Austrian Government agrees that it may not dispose of any funds derived 
from loans, or undertake any operation with a view to discounting the proceeds 
of loans, except by authorisation of the Commissioner-General ; provided that 
the conditions which the Commissioner-General may attach to such authorisa- 
tion shall have no other object than that of assuring the progressive realisation 
of the programme of reforms and of avoiding any deterioration of the assets 
assigned for the service of the loan. 

If the Austrian Government considers that the Commissioner-General has 
abused his authority, it may appeal to the Council of the League of Nations. 

The functions of the Commissioner-General shall be brought to an end by 
a decision of the Council of the League of Nations, when the Council shall have 

-- 46 — 

ascertained that the financial stabihty of Austria is assured, without prejudice 
to any special control of the assets assigned for the service of the loan. 

"(5) The Austrian Government will furnish as securities for the guaranteed 
loan, the gross receipts of the Customs and of the tobacco monopoly, and, if the 
Commissioner-General should deem it necessary, other specific assets determined 
in agreement with him. It will not take any measure which in the opinion of 
the Commissioner-General would be such as to diminish the value of such assets 
so as to threaten the security of the creditors and of the guarantor States. In 
particular, the Austrian Government may not, without the approval of the Com- 
missioner-General, introduce into the rates producing the revenues assigned 
as security any changes which might be such as to reduce their minimum total 
yield expressed in gold as this may be determined, before the issue of the loans, 
m order to provide for the necessary annuities. 

The yield of the gross revenues assigned as security will be paid into a special 
account, as and when collected, for the purpose of assuring the service of the 
annuity of the loans. The Commissioner-General may alone control this account. 
The Commissioner-General may require such modifications and improvements 
as may increase the productivity of the revenues assigned as security. If, not- 
withstanding such representations, it should appear to him that the value of these 
assets is seriously prejudiced by their management by the Austrian Government, 
he may require that this management shall be transferred to a special admini- 
stration, either by the constitution of a Government monopoly or by the grant 
of concessions or of leases. 

, 6 (a). The Austrian Government undertakes to grant no concessions 
which, in the opinion of the Commissioner-General, might be such as to compro- 
mise the execution of the programme of reforms. 

(b) The Austrian Government will surrender all right to issue paper money 
and will not negotiate or conclude loans except in conformity with the programme 
above set out and with the authorisation of the Commissioner-General. If the 
Austrian Government should consider itself obliged to envisage the issue of loans 
not covered by the conditions of the programme contemplated in this Protocol, 
it would first submit such plans for the approval of the Commissioner-General 
and of the Committee of Control. 

(c) The Austrian Government will ask its Parliament to make such modi- 
fications as are considered necessary, in accordance with the report of the Financial 
Committee (Annex), both in the statutes of the Bank of Issue and, should the 
occasion arise, in the Law of July 24th, 1922 (Bulletin des Lois No. 490). The 
statutes of the Bank of Issue shall assure it complete autonomy in its relations 
with the Government. The Bank should be responsible for the cash transactions 
of the State, it should centralise the Government's receipts and payments and 
should furnish periodical financial statements at the dates and in the form which 
may be determined in agreement with the Commissioner-General. 

fd) The Austrian Government will take and carry out all decisions neces- 
sary for the full realisation of the programme of reforms, including all necessary 
administrative reforms and the indispensable alterations in the legislation. 

(7) The Austrian Government will take all measures necessary to ensure 
the maintenance of public order. 

(8) All obligations defined above relating to the functions of the Commis- 
sioner-General or to financial or administrative reforms, so far as they relate 
to a period subsequent to January 1st, 1923, are conditional and shall not become 
finally binding until the British, French, Italian and Czechoslovak Governments 
have confirmed their promised guarantees by the approval of their respective 

Nevertheless, the Austrian Government definitely undertakes : 

(a) to take as from the present date all measures in its power 
to reduce the deficit ; these measures are to include, in particular, 
increases in the railway, postal and telegraphic rates, and in the sale 
prices of the products of the monopolies ; 

(b) to submit immediately to the Austrian Parliament the draft 
law contemplated in paragraph (3), which will give for two years to 
the Government now in office, or to any succeeding Government, full 
authority to take all measures which in its opinion may be necessary 

— 47 — 

to assure the re-establishment of budgetary equilibrium at the end 
of that period ; 

(c) to prepare immediately a programme of reform, to set in motion 
the necessary legislative action and to apply the first measures of exe- 
cution contemplated by the programme, between the present date 
and January 1st, 1923. 

(9) In the event of any difference as to the interpretation of this Protocol, 
the parties will accept the opinion of the Council of the League of Nations. 

The present Protocol shall be communicated to those States which have 
signed Protocol No. II signed at Geneva on October 4th, 1922. 

In faith whereof the undersigned, duly authorised for this purpose, has 
signed the present Protocol, 

Done at Geneva in a single copy, which shall be deposited with the Secre- 
tariat of the League of Nations and shall be registered by it without delay, on 
the fourth day of October, nineteen hundred and twenty-two. 

(Signed) SEIPEL. 

48 — 





The Financial Committee has the honour to report that it has studied the 
questions referred to it by the Austrian Committee of the Council, in consul- 
tation with the Austrian representatives, and is now able to submit the follow- 
ing repHes, which represent the unanimous opinion of the Committee. 


The Financial Committee is requested to consider, in consultation with the Austrian 
representatives, what measures are required and are practicable to secure budget 
equilibrium, and after what period it considers that, with these measures, the result 
desired should be obtained. 


The answer to this question cannot be given with certainty, for the period 
depends essentially upon the resolution and the authority of the Austrian Govern- 
ment in carrying out the drastic reforms recommended. But if this vital condi- 
tion is realised, the Committee considers that it should be possible to attain 
budget equilibrium in two years, and it is on this basis that the further recommen- 
dations are made. 

The main measures required for this purpose are : 

(a) Reform of State Industrial Enterprises. 

State industrial enterprises should be either suppressed if merely useless, 
or run by the State upon a commercial, i. e., paying, basis, or, in suitable cases, 
transferred to private management by concessions. The abolition of loss under 
these heads would involve a total annual saving of about 170 milhon gold crowns. 
The most important instance is that of the railways, which at present involve 
a deficit of 124 million gold crowns. The reason is partly the excessive number 
of employees, which should be reduced, and partly the low tariffs. While wages 
follow the cost-of-living index, the tariffs have only been raised to about one- 
fifth of what they would be on this basis. Under the Treaty of St-Germain, 
these low tariffs apply also to transit trade, and, therefore, benefit the for- 
eigner. The Committee considers that the railways should cease to involve loss 
within the period of two years, and, in view of the important transit trade, 
should ultimately be a source of profit. 

(b) Reduction of Officials. 

Vienna, as the capital of a country of 6 millions, has more State employees 
than when she was the capital of an empire of over 50 millions. The Committee 
considers that an effective reduction of gold expenses by at least one-third 
should be effected within the transition period. 

In addition, the subventions to the local administrations to assist them in 
paying their own officials on the basis of the cost-of-hving index should be sup- 

These reforms would give an annual saving of 130 milhon gold crowns. 

' The replies to questions 1, 2, 3 and 4 give only the summarised conclusions of the Com- 
mittee, and not the detailed reports on which they are based. The replies to these questions were dated 
September 15th, 1922. 



The Financial Commillee is requested to consider what deficit, in terms of gold, 
must be contemplated as necessary during the intervening period. 


The Committee estimates the total deficit during the period of two years 
as 520 milUon gold crowns, to which must be added the sum required to reim- 
burse certain advances made this year, raising the total to 650 million gold crowns. 
To enable the reforms to be effected, this sum must be available from credits. 

This estimate is based upon the following " normal budget ", which allows 
for the above refomis : 

Expenditure (normal budget). Millions of gold crowns. 

Public debt 52 

Pensions 42 

Civil service 100 

Army 20 

Social assistance 23 


It should be possible to obtain 237 million gold crowns in taxation by the 
cad of two years. This amounts to only 40 gold crowns per head and should be 
ultimately capable of increase ; but the difficulties which now result from low 
assessment during a period of depreciation and those of a different kind which 
follow immediately upon a stabilisation make the full attainment of this figure 
at an earlier date improbable. 


What securities can Austria offer for private credits and what is their approximate 
gold value ? 


The most suitable securities should, with the necessary administrative 
reforms, yield the following annual returns : 

Millions of gold crowns. 

Forests and domains 1 

Salt 1 

Customs 40 

Tobacco 40 

Of these, the first three are assigned as security in connection with the new 
Bank of Issue under the Austrian Government's plan for the Bank. On a conser- 
vative estimate, however, of these claims, this would leave 28 millions of the 
Customs available as a second-rank security, in addition to the 40 millions from 
the tobacco monopoly as a first-rank security. 

Moreover, the Committee considers (see answer to Question 4) that the plan 
for the new Bank of Issue can safely be modified so as to leave the whole of the 
Customs as a first-rank security for the credits required for the transition period. 

In addition, the impot fonder should, if necessary, be available (with reform) 
as a further first-rank security. 

The service of a loan amounting even to the maximum of 650 million gold 
crowns should not exceed about 70 million gold crowns. 

In the unanimous opinion of the Committee, therefore, the securities are 
ample for the credits required for the transition period, on the vital conditions 
that the reforms recommended are carried through (and the necessary measures 
taken to ensure sufficient authority to give confidence that they will be carried 
through) and that external and internal order are assured. 

50 — 


The views of the Financial Committee are requested on the proposed Bank 
of Issue for Austria. 


The Committee considers that the estabhshment of a Banl< of Issue is a useful 
and indeed vital part of the measures required for Austria's re-estabHshment. 

The Committee considers, however, that : — 

(a) The capital proposed, 100 million gold francs, is altogether excessive : 
30 millions should suffice ; 

fb) The guarantee by the State of the capital of the Bank and of an adequate 
return upon it, secured by a first charge on the Customs, should be relinquished. 
This should be possible if the other measures for the re-establishment of Austria's 
finances are adopted. 

(c) The capital should be raised by private subscriptions. If public funds 
must be used, the public interests should be sold out to private holders at the 
earliest opportunity. 

fd) The present provision that directors and substitutes elected by general 
meeting require the confirmation of the Federal Government should be eliminated. 

The Committee desires, however, to emphasise the fact that the Bank can 
only be of use in re-establishing Austria's credit organisation if the drastic reforms 
required to estabhsh budget equihbrium are also taken (and the necessary credits 
for the transition period are obtained) ; and that, even so, it cannot be perma- 
nently successful unless her economic position is also gradually established. 


Under what conditions can means be proposed for covering the deficit during 
the period of transition ? 


I. The Financial Committee estimated that the deficit to be covered by 
means of loans during the first two years is in the neighbourhood of 520 million 
gold crowns, plus a sum to cover certain advances made this year which raises 
the total to 650 milUon gold crowns. This is a budget deficit, and, in the first 
instance, it is Austrian currency, not foreign currency, which is required to meet 
it. It may be expected, therefore, that, once Austria's internal credit is re-estab- 
lished, a considerable proportion of the deficit will be covered by internal loans. 
But at present Austria's credit is non-existent, and neither internal nor external 
borrowing is possible for her until the following financial conditions have been 
satisfied : 

(1) The Austrian Government must forthwith (without waiting for any 
decision by the League of Nations) take all measures within its power to prevent 
an increase of the deficit (such as raising of railway, postal, telegraph, and tele- 
phone charges, increases in the prices at which the products of the tobacco and 
salt monopolies are sold, etc. 

(2) A control must be organised and set to work, and evidence must be 
given of the full co-operation of the Austrian Government in securing its efficient 

(3) The Customs revenues and the tobacco monopoly, subject to the 
necessary improvements in administration, must be allocated as security for 

' Tlip replic<; to questions Tt anrt wcrp dntotl September IStli. 1022. 

— 51 — 

The re-establishment of Austria's credit is further dependent on the adop- 
tion of various other measures already under discussion by the Austrian Committee 
of the Council, such as : the guaranteeing of Austria's territorial and economic 
integrity, under the auspices of the League of Nations ; the improvement of Aus- 
tria's economic international relations, as well as of her internal economic struc- 
ture ; the establishment of an efficient gendarmery throughout Austria ; the estab- 
lishment of the proposed Bank of Issue ; and the cessation of new issues of 
paper money. 

When all these measures have been taken and have proved their value, it 
is reasonable to hope that Austria may be in a position to borrow, both internally 
and externally, on her own credit. But it would be vain to expect that such 
reforms could be effectively initiated unless, at the time of their initiation, the 
Austrian Government and people were able to look forward with some certainty 
to the achievement of their final purpose of re-establishing financial and eco- 
nomic equilibrium. Moreover, the deficit begins to accrue at once, and the neces- 
sa:ry credit on which loans can be issued to provide ways and means for covering 
the deficit will not exist for many months unless some basis for credit is found 
from outside Austria. 

The Financial Committee is therefore driven to the conclusion that a suc- 
cessful reconstruction of Austria is impossible unless some of the Powers are 
prepared to guarantee the loans required to cover the anticipated deficit. It is 
recognised that such guarantees cannot be given in most cases without the consent 
of the Parliaments of the guaranteeing Powers, but, if promises of guarantees 
subject to parliamentary confirmation can be secured at once, these would provide 
the necessary basis of credit on which the initiation of the reforms depends. 
The guarantees must cover the full maximum deficit, since it would be both 
difficult and perilous to embark on the full programme of reform if the means 
for completing it were not visible from the beginning. This does not necessarily 
mean that the guarantees for the whole sum will actually come into operation, 
and it may well prove that the guarantees eventually involve no actual cash 
liability upon the guarantors. It the reform programme succeeds, there is reason 
to hope that some part of the maximum deficit can be provided internally or 
without external guarantees, and that the revenues of the Austrian State will 
amply secure the service of the guaranteed loans without recourse to the gua- 
rantors. But it remains true that guarantees covering the whole total are an 
essential pre-requisite. The larger the number of guaranteeing Powers, the broader 
will be the basis of confidence. 

II. We proceed now to sketch the practical steps to be taken to deal with 
the deficit, on the assumption that the reforms indicated are irdtiated and pro- 
mises of guarantees up to the total of the deficit have been given by various 

The period of transition can best be examined in four stages, viz. : 

First stage : jrom the Promise of Guarantees till the Initiation of the Control. 

During the first stage, it is essential that the Austrian Government should 
take all possible measures for reducing the deficit, but otherwise no change from 
present conditions will be possible. 

Second stage : from the Initiation of the Control till the Ratification of the Gua- 
rantees by the respective Parliaments, say December 31s/, 1922. 

It is assumed that the new Bank of Issue will open its doors within a few 
weeks, and the control to be set up under the auspices of the League of Nations 
will begin to function. We estimate that from 120 to 160 miUion gold crowns 
will be required to cover the deficit during this second period. 

We believe that this sum can be met, so far as it is not covered by the reserve 
at the disposal of the Austrian Government at the moment of the initiation of 
the control, on the following lines : There are available out of the unspent por- 
tion of the French, Italian, and Czechoslovak credits, sums understood at the 
date of this report to amount to about 45 million gold crowns. 

If the lending Governments agree, these sums could be used as part security 
for three- or six-months Treasury Bills (expressed in gold crowns, or in some 
foreign currency) to be issued in Austria by the Austrian Government and 

- 52 - 

purchased by the Austrian banks. The Bills might be further secured by a first 
charge on the Customs and on the tobacco monopoly. Possibly the gold belonging 
to the old Austro-Hungarian Bank might also temporarily be used as security 
for these Treasury Bills, instead of being deposited in the new Bank of Issue. 
It would be a matter for arrangement between the Government and the banks, 
which are largely concerned in the Bank of Issue, which of the two uses for the 
gold is preferred. The Austrian banks might reasonably be asked to accept 
these conditions as their contribution to the success of the reforms. 

Third stage : from Ralilicalion of the Guarantees to tlie Issue of a Long-term Loan. 

As soon as the Government guarantees become available, .Vustrian Treasury 
Bills in gold crowns or loieign currencies can be issued, subject to right of redemp- 
tion out of the proceeds of the prospective loan, secured either as proposed during 
the second period or by the guarantees of the Powers. The method of using the 
guarantees can best be discussed in connection with the fourth period. It is 
important that action by the Parliaments of the guaranteeing Powers should 
not be delayed beyond December 31st, 1922. 

Fourth stage : from tlie Issue of the Loan to tlie End of the Transition 
Period, December 31s/, 1924. 

If any guaranteeing Government so prefers, it can, of course, obtain power 
to lend money direct to the Austrian Government out of its own resources. We 
assume, however, that most Governments will prefer to confine their a.ssistance 
to the grant of a guarantee. There are at least three alternative forms under 
•which such guarantees could be given : 

(a) Each of the guaranteeing Powere might assume a joint and 
several responsibility for Austrian loans to be issued up to a maximum 
total of 650 millioji gold crowns. Such a guarantee would ensure the 
placing of the loans on the most favourable terms, but we are of opi- 
nion that it is politically impossible to secure such a joint and several 

(b) Each Government might guarantee a loan to be issued by 
Austria on the security of the pledged Austrian assets, plus its own 
guarantee, up to a given maximum, whicli would be an agreed propor- 
tion of the total required ; e.g., supposing that ten Powers agreed to 
give such guarantees in equal proportions, there would be ten types 
of Austrian loans, all .secured on the same Austrian assets but gua- 
ranteed separately by different Powers. Such a plan would greatly 
restrict the market for Austrian loans and postpone for a long period 
the date at which Austrian credit could be expected to be strong enough 
for an Austrian loan to be placed without external guarantee. 

^ (c) The guaranteeing Powers might agree to guarantee an agreed 
proportion of a single Austrian loan, issuable in one or more instalments 
as required ; e. g., supposing, again, that there were ten Powers giving 
guarantees in equal proportions, each instalment would be guaranteed 
as to 10 % by each Power, and while the pledged assets would be secu- 
rity for the whole, the individual guarantors would be responsible to 
the extent of 10 % only. 

We are inclined to favour tliis alternative, but the exact application of the 
guarantees is a matter which can best be determined by the issuing house, or 
group of issuing houses, which will be called upon to cany through the actual 
operation of issuing a long-term loan. An early decision will, however, be neces- 
sary as to the form in which the guarantees are to be applied to the issue of Trea- 
sury' Bills proposed during the third period. 

It is unnecessary to pursue these technical details further at the present 
stage. Our object in alluding to them is to indicate generally the nature of the 
guarantees which must be asked for from the various Governments, and the 
necessity for the legislation which authorises such guarantees being drawn in 

* This third alternative (c) v\ as tiie one adopted by llie Austrian Coiiiiiiitu-c of the Cuuneil. 

— 53 — 

terms sufficiently wide to cover various eventualities. We are convinced, however, 
that, if such guarantees are given, there will be no insuperable obstacles in 
placing all necessarj- loans in due course either in Austria or in money markets 
outside Austria, provided always that the Austrian Government and people 
have, in the meanwhile, proved that they are deserving of the assistance proposed 
by contributing by all means in their power to the efficient working of the reform 
plans and of the control established by the League of Nations. 


The Financial Committee is requested to state its opinion as to the conditions 
which are essential in any control that may be instituted in order to give effect to 
the recommendations made by the Committee with regard to the re-esiablishmenl 
of Austria's budget equilibrium and her credit. 


The aim of the controlling authority should be to assist the Austrian Govern- 
ment and collaborate with it in carrying out the programme of radical reform 
upon the reahsation of which depends the possibility of borrowing. 

This programme must be adopted in advance by the Austrian Government, 
sanctioned by the Council of the League of Nations, or its Austrian Committee, 
and voted by the Austriau Parliament. But the vote of the Austrian Parliament 
cannot be regarded as a mere approval of general principles, which will leave 
the Austrian Government under the obligation of applying for specific legis- 
lative authority to carry out the series of measures of reform, involving reduc- 
tion of expenditure and" increase of taxation, which will have to be taken to put 
the plan into effect. The initial approval should be clearly understood as con- 
ferring on the Government full powers to take decisions of every kind in agree- 
ment with the Controlling Authority, provided that they are in conformity with 
the approved programme and are directed to giving effect to it. 

This programme, which will have been sanctioned by the League of Nations, 
will, further, become the charter of the Controlling Authority and the source 
of its powers. The Controlling Authority's task will be to ensure that it is carried 
into effect, but it will have no mandate to insist upon measures which go out- 
side the limits of the programme or are contradictorj' to it. 

In order to be in a position to fulfil its mission, the Controlling Authority 
must have the right to determine the nature and form of the accounts, state- 
ments or periodical returns which it will require to be submitted to it ; to ask 
for any information which it may regard as useful from any departments |,of 
Government ; to verify, or cause to be verified, any accounts which it may think 
fit ; and to make investigations on the spot if it so desires. The Bank of Issue, 
which will be the cashier of the State, should centralise all the accounts of receipts 
and expenditure and submit periodical returns to the Controlhng Authoritj', 
certifying receipts, expenditure and credit balances of the various departments 
of the Austrian State. No borrowing operation of any kind should be carried 
out without the prior authorisation of the Controlling Authority. 

The produce of the revenues pledged for the various loans and the produce 
of any loans should be placed to the credit of special accounts in the Bank of 
Issue, and such accounts should not be allowed to be drawn upon without the 
prior authorisation of the Controlling Authority. 


The Financial Committee is requested to draw up a detailed report on the nature 
of the control to be established in Austria. 


In compliance with this desire, the Financial Committee has the honour 
to commend to the attention of the Austrian Conomittee of the Council the follow- 
ing observations, which express its unanimous opinion. 

1 l>aLc<i September 2(jtli, 1922. 

— 54 — 

The organisation of a form of control to be applied to Austria raises Tiew 
problems,- for the solution of which precedents can only be appealed to with the 
greatest caution. 

The functions of control, as the Austrian Sub-Committee has already defined 
them, on the recommendation of the Financial Committee, are to be imposed 
itt' accordance with a detailed scheme invested with a twofold authority : 
that of the Council of the League of Nations and that of the Austrian 

As regards the Austrian Government, which is to be endowed with full 
powers to give effect to this scheme, it is the duty of the Control Authority to 
insist upon the execution of the scheme. 

Hence it follows that : (1) the appointment and the dismissal of the agents 
of the Control Authority must rest entirely in the hands of the Council of the 
League of Nations, under the authority of which the execution of the scheme 
is to be carried out ; and (2) that the Council cannot regard the execution of the 
scheme as a matter with which it has no further concern, and that periodical 
reports ought to be submitted to it setting out the progress of the work of 

It may, however, be asked whether the Council ought to confine its duties 
within these limits. 

It would appear that, if defects or abuses should be ascertained in carrying 
out this scheme, the Council should continue to be the supreme authority to con- 
sider them . 

It is, however, desirable that the agents of the Control Authority should 
have undivided responsibility, and that'^the Council should not be involved, as 
the result of constant or frivolous petitions, in interference in the financial admi- 
nistration of Austria. Only by defining in accurate terms the cases where an appeal 
can'.be made to the Council for a decision,jand the party to whom this right of 
appeal should be granted, will it prove possible to eliminate these disadvan- 

Among the parties interested, the first place must be given to the Austrian 

Consideration, however, should also be given to the rights of the guarantor 
Governments. The latter, indeed, cannot remain indifferent to the progress of 
a^policy which aims at healthier^conditions. They will wish to know whether 
the latter will have the effect of diminishing or increasing the risks attaching 
toitheir guarantees, but it must be clearly understood that only abuses which 
are of a nature to endanger the satisfactory execution of the programme should 
give rise to an appeal. 

How can the guarantor Governments be enabled to protect their interests, 
which demand that the programme of supervision should be properly carried 
out ? 

It would appear prima facie that the duty of supervision cannot be entrusted 
to representatives of the guarantor Governments. The supervision must be 
carried out under the control of the Council of the League of Nations alone. In 
the interests of Austria herself, in order that the Council may fully maintain 
ts superior authority and carry out its role of arbiter, it would be impracticable 
to confuse the task of supervision, which is to be accomplished in its name, with 
the representation of the Governments concerned, which possess a recognised 
Hght of appeal. It would, however, be reasonable that the rcpresentativeslof 
*he guarantor Governments should form a committee^and should hayeithe right 
*o examine the execution of the programme and to receive necessary informa- 
tion for their enlightenment. Ufftf MM 

What relations would in that case be established between this committee 
and the supervising authority ? iii* . ' *;< 

If the Council is to remain the supreme authority, it would no doubt be 
undesirable that this committee .should be in daily communication with the 
Controller. We therefore propose that the committee should meet periodical^ 
— every three or six months, for example — and for preference at the seat of 
the League of Nations. In any conference with the representatives of the Control 
Authority, the committee would be entitled to ask for any information or expla- 
nation, but it would not have the right to give instnictions. If any serious 

— 00 

difficulties should arise, or should there by any question of serious abuse, the 
Council would be called upon to arbitrate in the matter. 

The further question arises whether the duty of supervision should be en 
entrusted to a single agent or to a body of persons. In order to reduce to a mini- 
mum the expenses of control and to ensure the necessary uniformity of view, 
a single controller would be highly preferable. It should be open to him to secure 
the help of technical assistants. 

The costs of control would be fixed by a decision of the Council of the League 
of Nations, and would be charged upon the Austrian budget. 

The control would come to an end, as a result of a decision of the Council 
of the League of Nations, when that body was of opinion that the financial stabi- 
lity of Austria had been attained by the execution of reforms, without prejudice 
to any special control of the guarantees given to secure the interest on the loan. 


The Financiar Committee has necessarily confined its examination of the 
measures required to re-establish Austrian finances within the sphere of financial 
considerations. It recognises that, apart from these considerations, there remains 
the problem of the fundamental economic position of Austria. Austria cannot 
permanently retain a sound financial position, even if she attains it for the time, 
and maintain her present population, unless her production is so increased and 
adapted as (with due allowance, of course, for her important invisible exports) 
to give her equilibrium also in her trade balance. 

This balance is at present seriously adverse, partly, but certainly not wholly 
as a result of inflation and currency dislocation. All possible measures, whether 
bj' the ameUoration of the international economic relations, the encouragement 
of the conditions which would increase Vienna's entrepot, financial, and transit 
business, and of those which will attract further private capital towards the 
development of her productive resources, are, therefore, of the greatest impor- 

These are, however, outside the Financial Committee's province. If the 
appropriate financial policy is adopted and maintained, the Austrian economic 
position will adjust itself to an equilibrium, either by the increase of production 
and the transfer of large classes of its population to economic work, or economic 
pressure will compel the population to emigrate or reduce it to destitution. At 
the worst, this would be better than the wholesale chaos and impoverishment 
of the great mass of the town population which must result from the continuance 
of the present financial disorganisation, which affords no basis for such economic 
adaptation as is possible. 

The Committee feels bound, in conclusion, to issue one word of grave warning. 
Austria has for three years been living largely upon public and private loans, 
which have voluntarily or involuntarily become gifts, upon private charity and 
upon losses of foreign speculators in the crown. Such resources cannot, in any 
event, continue and be so used. Austria has been consuming much more than 
she has produced. The large sums advanced, which should have been used for 
the re-establishment of her finances and for her economic reconstruction, have 
been used for current consumption. Any new advances must be used for the 
purposes of reform ; and within a short time Austria will only be able to consume 
as much as she produces. The period of reform itself, even if the new credits 
are forthcoming, will necessarily be a very painful one. The longer it is deferred 
the more painful it must be. At the best, the conditions of life in Austria must 
be worse next year, when she is painfully re-establishing her position, than last 
year, when she was devoting loans intended for that purpose to current consump- 
tion without reform. 

The alternative is not between continuing the conditions of life of last year 
or improving them. It is between enduring a period of perhaps greater hardship 
than she has known since 1919 (but with the prospect of real amehoration — 
thereafter the happier alternative) or collapsing into a chaos of destitution and 
starvation to which there is no modern analogy outside Russia. 

There is no hope for Austria unless she is prepared to endure and support 
an authority which must enforce reforms entailing harder conditions than those 

— se- 
at present prevailing, knowing that in this wav only can she avoid an even worse 

The following members constituted the Financial Committee when studjing 
the above questions : 

Chairman : M. Janssen. 
Members : M. Arm. 


Sir Basil Blackett. 

Mr. Fass (substitute for Sir Basil Blackett). 
Dr. PospisiL. 
Sir Henry Strakosch. 
Temporary members : M. Maggiorino Ferraris. 

M. A. Sarasin. 

57 - 




(1) The Economic Committee notes that objections are raised by certain 
Succession States to securing at present the immediate putting into force of the 
Porto Rosa recommendations regarding commercial relations. It is of opinion 
that, at the present time, the means most likely to promote the economic recon- 
struction of Austria would be to adopt and extend the application of the principle 
contained in Article 2 of the Protocol of Porto Rosa, by encouraging and hasten- 
ing the conclusion of conventions and bilateral agreements between Austria 
and each of the other Succession States, such conventions and agreements to be 
based as far as possible on the Protocol, but with such modifications as it may 
be thought possible and advisable to introduce in order to adapt them to each 
special case. 

(2) The Economic Committee is of opinion that, while, on the one hand, 
the amelioration of the financial situation of Austria is an essential condition of 
her economic reconstruction, nevertheless, financial assistance would by itself 
undoubtedly be insufficient for such reconstruction if Austria did not seriously 
set herself to reform the conditions both of her economic regime and of her 
foreign trade, and if she did not adopt a programme calculated to render produc- 
tive the State undertakings which are at the moment a serious charge not only 
on her budget but on her whole economic system. The granting of any loan 
must be conditional upon her giving definite undertakings regarding the reforms 
and programme mentioned above. 

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April 8th, 1922. 

League of Nations. 

Provisional Eeonomie and Financial Committee, 



Director of the National Bank of Belgium. 




Note on the Plan for an International Clearing House. 

By M. A. E. Janssen, Director of the National Bank of Belgium. 

The International Financial Conference held at Brussels in 1920 was unani- 
mously of opinion that the League of Nations might usefully exert its influence 
with a view to promoting certain reforms; amongst others it mentioned the desir- 
ability of making some progress as regards the question of the creation of an Inter- 
national Clearing House. 

This question is not a new one, and had been the subject of various detailed 
proposals even before the world-war of 1914. 

In 1908, M. Luzzati, the Italian statesman, who has brought so much renown 
to his country, made a most interesting statement on this subject to the Institute 
of France. 

Certain persons of different nationalities, amongst whom I may mention 
M. Wolff, Professor at the University of Breslau, and Mr. Cortelyou, Secretary 
of the United States Treasury, also proposed the co-operation of Banks of Issue 
at times of crisis. 

The question was fully examined at a Congress held at Brussels in 1912 by the 
International Economic Union, and the conclusions reached were embodied in a 
resolution which may be recalled here. 


"The International Economic Union expresses the desire that European Banks 
of Issue should hold international conferences. 

"The object of these conferences would be to examine all proposals for improving 
and perfecting the present system of international payments, and to make pre- 
parations for the carrying out of plans recognised as expedient and feasible. 

"Moreover, conferences of this kind are essential in order to render possible 
the effective co-operation of Banks of Issue in exceptional circumstances. 


"Amongst the projects which could be put into practice at once by a Confer- 
ence which included delegates of the Central Banks, the International Economic 
Union calls attention to the following: 

"I. The establishment of a system of international transfers for the benefit 
of holders of current accounts in Banks of Issue. 

" 2. An International Clearing House which would adjust the debits and 
credits of all adhering banks by the clearing system. 

" 3. The reciprocal collecting of any foreign bills which they may hold. 

" 4. The issue, at the request of the public, of international letters of credit 
or cheques by one bank on another. 


' ' In their present isolated position it would be difficult for Banks of Issue to 
take up the above proposals. Hitherto all kinds of considerations have caused 
them to hesitate to take any action abroad in connection with the development 
of the system of international accountancy. The holding of conferences will 
necessarily lead Banks of Issue to co-operate with a view to ascertaining what 
improvements it may be possible to introduce into the organisation of international 
credit and methods of payments. As regards the difficulties of application, whether 
of an objective or personal nature, they would become clearly apparent, and the 
discussion of them would not be merely theoretical. " 

In order to appreciate the purport of these proposals, it is desirable to recall 
briefly how international payments are made. 

S. d. N. — 375 — 5/22. — Imp. Alar. 

In practice, settlements between one country and another are generally effected 
by clearings ; that is to say, by an exchange of drafts and cheques and by direct or 
indirect remittances. These operations are settled by means of the current 
accounts which the banks, which in each financial centre specialise in exchange 
operations, carry with one another. In some circumstances these international 
clearings are more difficult ; they are effected, however, by means of a series of reci- 
procal actions and reactions, by the movement of goods and, above all, of securities 
rather than of specie. Further, in accepting bills of exchange against cheques — 
that is to say, bills payable at maturity against other bills payable at sight — the 
banks also alter the balance of accounts ; this amounts to a credit operation in that 
the term of maturity is postponed. Before the war, however, whenever for various 
reasons the system of clearing was not employed and payment was demanded, it 
was found that the system which often operated with considerable success was an 
adjustment of the bank rate by the central Banks of Issue. 

When the balance of payments was momentarily upset, the rates of foreign 
exchanges were immediately affected by it. The balance standing to the credit 
of foreign countries had to be paid and the metal reserves of the Banks of Issue 
were drawn upon. In order to arrest the outflow of gold, the usual remedy was 
rapidly to raise the official bank rate; but even this was not effective unless the 
Central Bank controUed the money market sufficiently to have an effect on the 
open market rate. This procedure induced foreign creditors to take advantage 
of the increased interest on the debtor exchange; for this reason they postponed 
the time for demanding payment of the balance, and consequently the gold reserve 
remained at the Central Bank as the covering for payments at sight, banknotes 
and balances standing to the credit of current accounts. 

In addition to the system of the adjustment of the bank rate, properly so-called, 
various Banks of Issue had recourse to fiduciary currency in order to avoid inroads 
upon their holdings. Banks thus succeeded in avoiding purely temporary increases 
in the bank rate. 

Sometimes the rise in the bank rate did not produce the expected result. In 
spite of the bait offered by a high rate of interest, capital nevertheless left the country 
either because there was no longer any confidence in the credit of the debtor market 
or because of an urgent need of specie in foreign countries. Thus, in November 
1907, the Bank of England raised the official rate to 7 per cent., but did not succeed 
in checking the export of gold to the United States, where an acute financial crisis 
was raging. But for a timely intervention on the part of the Bank of France, 
in the form of a direct consignment of gold to the Bank of England, it would not 
have been surprising if the bank rate in London had risen to 10 per cent., at the 
risk of causing profound disturbance in English trade, and, as a result, in Con- 
tinental trade. Similar situations also arose in 1890 and 1906. 

In these circumstances, M. Luzzati would have liked, by an international 
arrangement — the basis of which would be discussed and fixed by a Conference 
composed of delegates from the Banks of Issue — to ensure a more satisfactory 
division of the amounts of gold required to prevent excessive rises in the bank rate. 
He suggested in particular: " France, Italy and Russia might make loans to England; 
Austria to Germany; and thus England could render greater help to the United 
States. That, at least is how matters stand to-day; to-morrow they maybe the 
reverse. Who knows whether the helping countries maj^ not become the countries 
in need of assistance ?" This is what has actually happened ! 

This plan had much to commend it ; it was based on the fact that, as the result 
of the interdependence of the great financial markets, any national financial crisis 
reacted internationally by obliging foreign banks to intervene by sending consign- 
ments of gold. The bank rate policy then practised by Banks of Issue merely 
tended to aggravate a crisis. This struggle for gold, represented by the reciprocal 
raising of the bank rates, was allayed by the furnishing of gold credits. 

We must recall the circumstances in which the intervention of the Bank of 
France took place. 

In 1890, one of the greatest banking houses in London — the House of Baring — 
was on the point of suspending payment. As a result, there was a great disturbance 
in the London market. The official bank rate was already 6 per cent, and as the 
Bank of England is not empowered to pay its notes in silver, and as, moreover, 
its charter limits the possible margin between its notes and its gold reserve, it had 
no other means at its disposal but further to increase its bank rate. But if the 
Bank of England increased its rate still further at that moment, when there was 
already a difference of 3 per cent, between the London and the Paris rates, the Bank 
of France would alm.ost certainly have been obliged to imitate its neighbour and 
to raise its own bank rate, to the detriment of French trade. 


In these circumstances, the Bank of England approached the Bank of France, 
asking it for help in order to maintain its gold reserve at a level which would enable 
it to avoid the necessity of raising its rate above 6 per cent. The Bank of France 
did not hesitate to send a favourable reply to this proposal, in the interest of the 
commercial relations of the two countries, and still more in that of French trade, 
and, most of all, in the interest of the Parisian money market. It thereby avoided 
a financial crisis which was threatening in England and which would have reacted 
acutely upon the French market. An advance of seventy-five millions in gold 
was granted to the Bank of England for a period of three or six months at its own 
option against the discount at 3 per cent, of English Treasury Bonds, and on the 
express condition that this sum would be returned in the same metal to the reserves 
at Paris. The Bank of England thus succeeded in carrying out its functions without 
contravening the Act of 1844, in spite of the disturbance of credit on the London 
market caused by the faU of the House of Baring. This action on the part of the 
Bank of France was the subject of a question by M. Francis Laur in the French 
Chamber on January 17th 1891, and M. Rouvier, who was then Financial Minister, 
replied that the Bank had acted on this occasion with the authorisation of the 
Minister responsible. On several occasions since then the Bank of France has thought 
fit to take similar action. We quote below two extracts from the records of the 
Bank of France, making clear the conditions under which this course was adopted. 

In the first place, we find the following in the report on the operations of the 
Bank of France for the year 1906: 

"The tightness of money, which accompanies a development of business such 
as that which we are witnessing at the present moment throughout the world, 
has not failed to arise, without, however, causing any prejudicial effects in France. 

"The European markets have been affected to a very large extent because 
unaccustomed demands have been made upon them from all parts of the world, 
and particularly from the United States. The bank rate has rapidly risen. It 
reached 6 per cent, in London, and even this increase proved insufficient to check 
the outflow of money, and there was reason to fear that the financial tension, 
if not relieved, would be felt in France and would compel us in our turn to raise 
our bank rate. 

" In these circumstances we had a double duty. We had, on the one hand, 
to provide the market both at home and abroad with the necessary reserves to 
prevent the rise in the exchange, which would inevitably have reacted on our country. 
On the other hand it was our duty to avoid encouraging speculation, which would 
have been bound to cause a great rush of business, and might have resulted, if 
not averted in time, in a crisis. The Bank of England has fulfilled this double 
role as far as it was permitted to do so. 

"In pursuance of a financial policy which has hitherto been justified by events, 
we have discounted English paper and provided the London market with the funds 
necessary to enable it to emerge from this difficult position. 

"We did not part with our gold without due consideration, and without being 
certain that it was directed to centres where it would prove of real service and where 
we had a real interest in preventing a possible crisis, from the point of view of 
French trade. 

"The Bank of France has, therefore, fulfilled its essential function of controlling 
and adjusting the bank rate in the national market; it has secured this result by 
various means, but in particular, and above all, by a procedure which has, moreover, 
met with general approval. The extent of its reserves has enabled it not to limit its 
action to the French market alone. The difficulties came from abroad, and the Bank 
went to the actual source of these difficulties in order to allay them and to assure, by 
action in the London market, the stability and moderation of the bank rate in Paris. 

"By utilising the power granted by our statutes to discount bills on foreign 
exchanges, we substituted for these bills an equal quantity of gold, which was sent 
to those centres which at the moment had real need of our assistance, with the 
certainty of seeing our gold returned. 

"The formation of a holding in foreign bonds, which had, moreover, already 
been provided for in our balance-sheet, had hitherto only been regarded by Banks of 
Issue as a means of protecting the reserves of metal in the event of a rise in the 
exchange. Our gold reserve was so great as to enable us to place at the disposal 
of a neighbouring friendly country the bullion reserves necessary to avoid a financial 
tension which might soon have obliged us to take defensive measures ourselves. 

"At the same time we refused to discount paper presented with the obvious 
purpose of obtaining means for excessive speculation abroad. 

"Owing to these various measures, which were rendered possible by our large 
national reserves, we were able to maintain the trade rate of discount for the year 
1906 at 3 per cent. " 

Similar action was taken in the following year. The Governor of the Bank 
of France, in his report on the financial year of 1907, referred in the first place to 
"the crisis — much more acute (than that of the preceding year) — which began 
at New York in the second half of October (1907), threatening the European 
exchanges with sudden and violent effects," and he continued as follows: 

"The first market to be seriously affected was the London market, which, 
owing to the wide field of its business and the intricate nature of its relations, is 
more closely bound up than any other with the American market, where the 
scarcity of gold, which had disappeared from circulation under the influence of a 
want of confidence which drove everyone to realise, neutralised the effect of consign- 
ments and arrivals of gold from abroad. 

"The increase of the Bank of England rate to 5'/* per cent, did not succeed 
in checking the drainage of gold, which was in demand, owing to the considerable 
premium to which it rose within a few hours in the principal towns of the United 

' ' We could not hide the fact that, in face of such a panic (specie was only lacking 
in circulation because it was being hidden away), no practical result would be obtained 
by having recourse to successive increases in the bank rate; such measures would 
only prove a drain on the circulation and would compel us, like our neighbours, to 
fix an exorbitant bank rate. 

"Instead of adopting this course, which would have been entirely fruitless, 
what had to be done was to place at the disposal of the Bank of England, as rapidly 
as possible, resources still greater than in the preceding year, in order that it might 
forward them to the New York Exchange without weakening its legal reserve. 

"We were thus contributing to the preservation of the controlling markets, 
and it was, of course, to our own interest to send reinforcements to points where 
the critical conditions threatened to involve us in the general crisis. 

"The recourse to this efficacious operation, for the second time, in 1907, was 
nothing more than the regular application of our constitutional statutes. 

" You are aware that the Bank of France should never under any circumstances 
make any use of funds reserved to cover those of its notes which are not represented 
by available securities maturing within periods determined by its regulations. 

"Moreover, we did not hinder the dispatch of direct consignments of gold to 
New York, occasioned by the normal discount of French commercial bills; and 
in the same spirit of friendly solidarity as in the preceding year, in the same form 
and with the promptitude required by the circumstances (but avoiding implication 
in the crisis), we guaranteed to the London market available funds to the amount 
of more than 80 million francs in American gold currency. 

"Our balance sheet thus contains, for the second time and for a short period, 
foreign bills, all the amounts of which are to be repaid to us entirely in gold by the 
various drawees and which only temporarily — but in a very profitable form — 
take the place of the sums which we have been able, without any difficulty, to raise 
on our extensive reserves, in order to preserve the French market from a financial 
panic the intensity of which is almost without precedent. 

"Though, as a result of exceptionally serious circumstances, this friendly sup- 
port was not sufficient to enable London to avoid fixing a rate of 7 per cent. — which 
obliged us to raise our own rate of discount by Ya per cent, and to raise the rate 
for advances from 4 to 4V2 per cent. — it is only too certain that if we had not come 
to the aid of the great and friendly neighbouring market, we ourselves should 
certainly have been driven to take measures which would have been still more 
harmful to our commerce and our industry. 

"The measures which we took have thus enabled us to preserve for our own 
nationals the inestimable advantage of a discount rate which is still lower than 
in all other countries and is free from sudden fluctuations. 

"At the end of December the margin between the official rate at Paris and the 
official rate in London and Berlin was still from 3 to 3V2 per cent." 

It should be pointed out that the Bank of France was not the only one which 
carried out this policy of direct intervention in the foreign markets. The Austro- 
Hungarian Bank also sent gold to Berlin in 1907 with the object of avoiding an 
excessive monetary tension there and preventing a rise in the bank rate, which 
would have reacted on the price of money at Vienna. 

This occasional mutual aid of Central Banks by means of reciprocal gold loans 
has proved so successful that there is no need to demonstrate its utility ; it is suffi- 
ciently proved by the preceding statement. 

It is doubtless impossible to transform into diplomatic agreements or permanent 
arrangements the spontaneous good offices and wise co-operation of which the 
Bank of France gave an example, but it is desirable that this far-sighted policy 

should be imitated by the Banks of Issue, which present circumstances have placed 
in possession of great financial wealth. 

Before the war the objections to this course were principally of a political 
nature, but to-day rich and poor alike are suffering so greatly from the state of 
financial instability that it is being realised that co-operation is becoming more 
and more indispensable in the interests of the nations. 

Such was the situation before 1914. During the war and until the first months 
of the year 1919, international payments between allies took the form chiefly of 
advances from one State Treasury to another, the heavy burden of which impov- 
erished Europe is now bearing. The financial disturbances caused by the world- 
war have seriously hindered the working of the delicate mechanism to which, before 
1914, the Banks of Issue held the key. 

But it is none the less true that clearing still plays a predominant part in the 
liquidation of international accounts. 

To be convinced of this, one need only read the able study of the foreign 
exchanges which has just been published by M.Jules Decamps, Director of the 
Economics Department of the Bank of France. But when we speak of clearing, 
we pre-suppose that there is something to clear, and, unfortunately, as a result 
of the economic instability prevailing in Europe at the present time, too many 
countries have many debts and few assets. 

A constantly unfavourable commercial balance, combined with large issues 
of unconvertible paper money, have brought about a loss of equihbrium, of which 
the present rates of exchange are merely the reflection. 

Thus the favourable influence which the establishment of an international 
clearing-house may exercise must not be exaggerated. 

The present situation of the foreign exchanges is the result of causes so deep 
and so well known that it cannot be effectively remedied by a mere improvement 
in the methods of international payments. 

Having regard to the preceding considerations, a system of international 
transfers for the benefit of holders of current accounts in Central Banks of Issue, 
supplemented by a clearing house, could, with a little mutual good-will, be estab- 
lished within a short period. 

In this connection, mention should be made of the Convention concluded 
in 1885 between the Banks of Issue of the three Scandinavian Kingdoms — the 
Royal Bank of Sweden, the Bank of Norway and the National Bank of Copen- 

In accordance with the charters of these banks, each of them is authorised 
to make current account deposits up to a specified amount in the Central Banks of 
the two other countries, and the credit balance of these current accounts may 
be considered as forming part of the metal reserve on which the issue of notes is 
based. The three Central Banks utilised this power to conclude the Convention, 
■ the purport of which we reproduce below : 

1. Each of these three banks shall open a current account with each of the 
others; on this account they may issue cheques payable at sight, even if 
this involves an overdraft; all sums ma}' be paid in to their respective 

2. No interest will be charged on credit or debit balances, nor will any com- 
mission be charged on transfers. 

3. Cheques may also be drawn on the head offices of the three banks or on the 
branch of the Bank of Norway at Christiania or Bergen. 

4. None of the banks is authorised to draw on the others for the purpose 
of profit. 

5. No cheque may be issued for an amount less than five thousand crowns. 

6. No commission is charged on the issue or collection of cheques. 

7. Notice must in all cases be given of the issue of cheques. 

8. Debit balances must be paid up at the request of the creditor bank. 

9. When the balance of an account is drawn in specie, the creditor will assume 
the risks and defray the costs of consignment. 

10. If the bank from whom the debt is claimed has a credit balance with the 
third bank, it may settle the debt by delivery of a cheque on that bank. 

11. All payments under the above articles will be made in gold pieces of 20 
or 10 crowns. 

12. Accounts will be rendered quarterly. 

13. The Convention may be denounced and become imperative after notice 
given three months in advance. 

To sum up: 

The three banks have non-interest-bearing accounts with each other, and 
each bank is entitled to issue cheques on the others even without previous 
arrangement. The banks may require the amount due to be remitted in gold, but 
any bank which requires such remittance must itself bear the cost of transport. 

The application of this Convention greatly facilitated business relations 
between Norway, Sweden and Denmark. 

Consignments of gold, which had previously been very frequent between 
the three countries, considerably decreased. 

It should also be noted that the three banks mutually entrust to each 
other the cashing of bills of exchange, the amounts of which are placed to the 
credit of their reciprocal current accounts. 

The Convention concluded between the three Central Banks of the Northern 
Kingdoms proves that Banks of Issue may render great services to commerce by 
facilitating international payments, without in any way prejudicing their individual 

Further, the Governments themselves have created an international system 
of money orders, transfers and clearing operations, and here we allude to the Con- 
ventions concluded between the postal administrations. An examination of these 
Conventions furnishes the best proof that an agreement is possible between Banks 
of Issue on the subject of transfers. It should be pointed out that the postal admin- 
istrations have shown a progressive and enterprising spirit, because the arrange- 
ments concluded between the countries adhering to the Universal Postal Union 
have always given proof of a happy combination of co-operation between the 
members of the Union and respect for the complete autonomy of each State. 

International money orders were arranged by the Paris Postal Convention 
of June, 1878, in accordance with the revised arrangement of Madrid on November 
30th, 1920. The amount of these orders must be paid in by the sender and paid 
out to the receiver in specie ; but each administration has the power either to receive 
payment or to pay in any paper money which is legal tender in its own country, 
account being taken, if necessar}^, of differences in the rates of exchange. 

Each administration has the power to fix the maximum amount for the orders 
issued by it, on condition that this maximum does not exceed 1,000 gold francs. 

Subject to any arrangement to the contrary, the maximum amount for money 
orders payable in any one country is the same as that adopted by that country 
for issue. 

When one and the same sender issues on the same day and in the same place, 
to one and the same receiver, several money orders, the total amount of which exceeds 
the maximum adopted by the country of destination, the receiving office is author- 
ised to pay the orders in instalments, so that the sum paid to the receiver on any 
one day does not exceed this maximum. 

Subject to any arrangement to the contrary between the administrations 
concerned, the amount of each money order is expressed in the currency of the 
country in which payment is to take place. For this purpose the administrative 
authority of the country of origin itself determines, if necessary, the rate of conversion 
of its own currency into the currency of the country of destination. 

The administrative authority of a country of origin also determines, if necessary, 
the rate to be paid by the sender when this country and the country of destination 
have the same monetary system. 

This system of international payments is very conveniently supplemented 
by a central accounts and liquidation office with headquarters at Berne. This is 
really an International Clearing House, and we think it would be well to give certain 
details as to its working. 

The administrations belonging to the Universal Postal Union have to draw 
up, at periods determined by common agreement, reciprocal accounts relating 
to the various branches of postal traffic (mail in transit, packages of declared value, 
postal parcels, telegrams, newspapers, subscriptions, postal orders). 

These balances include: 

(a) The calculation of assets and liabilities based on special accounts and 

(b) The transfer of the sums arrived at by this calculation to a general account, 
and the ascertainment by the means of the net amount (balance) for which 
each administration is indebted to the others. 


Until 1892 the liquidation of the balance by the debtor office to the creditor 
office was effected by means of a draft or consignment in specie. This proceeding, 
which involved the creation of a large number of special accounts, was extremely 
burdensome and gave rise to numerous difficulties. The administrations concerned 
incurred considerable expenses by the purchase and sale of the drafts used in the 
liquidation of the various balances. The establishment of an International Clearing 
House would necessarily lead to a great simplification of the above-mentioned 
method of accounting. The question was discussed at the Vienna Postal Congress 
in 1891 and, on July ist, 1892, a Central Accounts and Liquidation Office was 
established at Berne and attached to the International Office of the Universal 
Postal Union. 

The International Office at Berne undertakes the balancing and liquidating 
of accounts of every kind relating to the international postal and telegraph services 
between the administrations of the countries of the Union. 

After having worked out and adopted their accounts, the administrations 
send to each other an acknowledgment of their liabilities, expressed in francs and 
centimes, stating the matter and the period covered and the balance arrived at. 

Each administration sends monthly to the International Office a table showing 
its assets under the heading of "Special Accounts", together with the total of the 
amounts due to it from each of the administrations, members of the Union; every 
credit appearing in this table must be authenticated by an acknowledgement 
from the debtor office. 

The International Office ascertains, by comparing the acknowledgements," 
whether the tables are correct, and the liabilities of each administration are carried 
forward into a summarized account. Then the International Office reduces the 
tables and summarized accounts to one general balance-sheet showing: 

{a) the total liabilities and assets of each administration; 

(b) the debit or credit balances of each administration, representing the dif- 
ference between the total debit and the total credit ; 

(c) the sums to be paid by some of the members of the Union to a particular 
administration; or, inversely, the sums to be paid by the latter to the others. 

The totals of the two classes of balances under (a) and {b) must necessarily 
be equal. 

When the total amount of the assets and liabilities of each administration 
is ascertained, the International Office decides what payments are to be made — 
that is to say, it states to which administrations payments must be made by the 
debtor administration. 

As far as possible it ensures that each administration only has to make one 
or two separate payments in order to square its accounts. 

It should be noted, however, that any administration to which another 
administration is habitually indebted to an amount exceeding 50,000 francs has 
a right to claim payments on account. These payments on account are entered 
by both the creditor and debtor administrations at the foot of the tables sent to 
the International Office. 

Such are, in brief, the provisions regulating the clearing of postal accounts. 

The preliminary draft of the plan summarised the advantages guaranteed 
by the new organisation as follows: 

1. "Supposing that there are 11 associated administrations and that a system 
of money orders is in operation between them, there will be, under the present 
accounting methods, no monthly accounts and 55 general clearing accounts 
regarding money orders alone. The adoption of the proposed procedure would 
have the immediate effect of abolishing these latter accounts. 

2. "The liquidation of the 55 accounts in question at present calls for the 
same number of special drafts. The new plan would reduce this number to about 
10; this reduction would involve a considerable reduction of expenditure under 
the heading of 'Purchase and Sale of Drafts.' Ten will also be sufficient when the 
general account to be settled between the various offices includes services other 
than money orders. 

3. "As the new procedure provides generally for the use of negotiable drafts 
in the great commercial centres, the difficulties, supplementary expenses, etc., 
resulting from the acquisition of drafts for a smaller amount or payable in towns 
of less importance will be obviated." 

A real step in the direction of a system of international postal transfers has 
recently been taken in the agreement concluded between twenty-six countries 
at Madrid on November 30th, 1920. The essential provisions of this agreement 
are as follows: 

1. Any person having a postal current account in one of the countries which 
is a party to this agreement may order money to be transferred from his account 
to a postal current account kept in another of these countries. 

2. Each administration is authorised to fix the maximum amount of the 
transfers which the holder of an account may order either in a single day or during 
a specified period. 

3. Each administration is free to comply with all the regulations imposed 
by the public law of its own country, particularly as regards the export of capital. 

4. The administration in any of the contracting countries is authorised to 
suspend, either wholly or partly, the transfer system, when exceptional circum- 
stances warrant such a procedure. 

5. Each administration shall itself fix the rate of conversion of its currency into 
the currency of the receiving country for all transfers ordered by holders of accounts. 

There can be no doubt that the introduction of a system of international 
postal transfers will prove advantageous to the business world. 

As regards financial policy, the international transfer system will be productive 
of good results. Coin and banknotes which are at present in circulation in the 
various countries will thereby become available for other purposes. The transfers 
do not involve any handling of specie, since they are effected by entries in the 
accounts. A double transaction involving the use of specie — the pa5dng-in and 
the paying-out — is thus dispensed with. 

The international postal transfer system is certain to develop greatly, in view 
of the increasing number of persons with postal current accounts in countries 
where the postal cheque system has been established. 

On December 31st, 1921, the number of accounts which had been opened 
was as follows: 

Germany 759.830 Serb-Croat-Slovene State . 6,923 

Danzig 3,895 Luxemburg 2,240 

Austria 177,465 Netherlands 49.330 

Belgium 65,514 Switzerland 42.740 

Denmark 3,538 Czecho-Slovakia 63,739 

France 112,000 Hungary 40.475 

Japan 180,683 

The system of transfer is operated, on the one hand, by the Central Bank, 
and, on the other, by the Post Office and the great private banks with their numerous 
agencies. The Central Bank can only have a limited number of branches, and these 
are opened only in important areas. The Post Office, thanks to its thousands of 
agencies and oifices, is in a certain sense the natural extension of the bank, for the 
more agencies there are, the more widely does the transfer system extend its rami- 
fications. Transfer operations are thus carried on by two organisations which 
supplement each other and between which the establishment of direct relations 
was a logical development. 

Thus, in principle, any person in possession of a postal cheque account may 
transfer any portion of his deposit to any transfer account in the Central Bank. 
Conversely, any person who has a transfer account in the Central Bank may transfer 
any sum to any postal cheque account, thus obviating a direct payment at the 
Post Office, with the consequent charges. This arrangement undoubtedly offers 
substantial advantages to persons with postal cheque accounts and those with 
transfer accounts at the Central Bank. 

In Banks of Issue transfer operations are rightly regarded as among their 
most important duties. Hitherto transfer or clearing operations by Banks of Issue 
have been confined to the territory of the State which granted them the right 
to issue notes. 

Several years ago the Universal Postal Union instituted international postal 
orders or letters of credit. We have just given an account of a new international 
postal transfer organisation, which is likely to prove of great importance when the 
postal cheque system attains its full development. Why, it may be asked, should 
direct relations not be established between the Banks of Issue for the purpose of 
enabling transfers to be made ? 

Most Banks of Issue at present possess bills on foreign countries in their port- 
foHos; some have current accounts in foreign banks. Seeing that the holding of 


funds abroad is now regarded as normal and legal, there would be nothing to prevent 
a part of such funds being placed on current account in a foreign Bank of Issue. 
Each bank would, moreover, be absolutely free to determine, at its convenience, 
the maximum amount of such account, and any creditor bank would have the 
right to demand payment at any time of the sums which might be due to it. 

As Banks of Issue, on principle, pay no interest on deposits kept on current 
account, it will always be possible to transfer the balance or part of the balance 
to current accounts opened in foreign private banks which pay interest. This 
practice is adopted by private persons who at present have money on current 
account in Banks of Issue. 

Banks of Issue might also authorise each other to receive payment of bills 
of exchange which they hold on foreign countries and issue international letters 
of credit or money orders at the request of the public. 

The sj'stems of transfer operations between holders of current accounts in the 
Banks of Issue may be supplemented by an International Accounts Office, which, 
after the manner of the Berne Postal Clearing Office, would set off, by means of 
clearing operations, the debit and credit sides of the accounts of each bank which 
was a party to the arrangement, leaving only the balances for final adjustment. 

The clearing organisation acting for the twelve reserve banks in the United 
States of America and employing the " Gold Settlement Clearing Fund" established 
at Washington, might also, to a certain extent, serve as a suitable model in 
drawing up the agreement to be concluded between the Central Banks. 

Some will assert that the foregoing constitutes a very modest reform. They 
dream of vast schemes, of monetary peace, and thus recall all the hopes and illu- 
sions which came into prominence about 1865 when many persons believed that 
they could succeed in establishing a universal currency or a universal bank. 

At that date metalhc money was of predominant importance, but since then 
an economic development of deep significance has taken place. It was brought 
about by the extended use of improved methods of payment — by an advance 
from cash to the banknote, from the banknote to the cheque, and, by means of 
the cheque, to transfer and clearing operations. 

We must not be understood to imply that the importance of precious metal 
has diminished ; on the contrary, indeed, it is more than ever the basis of all these 
numerous substitutes which take the place of coin; it is only the actual circulation 
of precious metal which has fallen off. As the circulation of paper-money has 
increased and the use of exchange and credit instruments, such as cheques, drafts 
and clearing operations, becomes more widespread, standard money is used to an 
ever-decreasing extent in business transactions. Gold provides the security for 
the subsidiary metallic currency and the whole of the note issues, and it performs 
this ofiice by being accumulated in ever-increasing quantities in the vaults of the 
Central Banks of Lssue. 

Thus, in the majority of countries, the most important duties of Bank of Issue 
are related to currency, for the issues of banknotes are not augmented merely to 
meet the increased requirements of credit, but also to take the place of, and represent, 
specie which has largely passed into the reserves in the banks. The public rightly 
finds that the note, cheque and draft are more convenient in use. 

The value of this mass of paper-money is mainly dependent upon its being 
convertible into coin ; experience, however, shows that this convertibihty is by no 
means constant in all countries, and may in many circumstances be considered 
as highly problematical. 

The securities for convertibility are of two kinds : 

1. The coin and bullion in the vaults of the issuing institutions. 

2. The credits which form the remainder of the assets. When the credits 
are commercial and liquid, notes can be reimbursed whenever they are presented. 
This, however, is not always the case. We must never lose sight of the position 
of Banks of Issue in their relations with their Governments, — i. e., the amount of the 
advances which the banks have made to them in one form or another. 

When a Bank of Issue merely lends the Government its capital, there is no 
occasion for anxiety, because the capital of a Bank of Issue is regarded as nothing 
more than a guarantee fund. But when the bank lends the State more than its 
capital — i.e., when it lends it either a part of the private deposits which it receives 
and which may be withdrawn from it at any time, or sums which have accrued 
to it as a result of the excess of its notes in circulation over and above its'metallic 
reserve — the danger becomes very great, because the deposits or the notes issued 
are no longer covered. 


The financial history of the nineteenth century and of the 1914-1918 war 
shows that Governments have frequently had recourse to the credit of their Bank 
of Issue, and have forced it to increase its note circulation. The banks agree to 
create paper in this way which is not backed by coin or commercial biUs only on 
condition that they are freed from the obligation of repaying in cash; the conse- 
quence, often inevitable, of advances to the Treasurj' is therefore the estabUshment 
of an inconvertible currency. 

It may therefore be stated as a general principle that the monetary position 
of a country is dependent upon a real balance in its budget and the satisfactory 
working of its paper-money system. 

Any excess of floating debt in the form of Treasury bonds, discounted by the 
Banks of Issue, may itself suihce to disturb the money market. 

Advances made to States by Banks of Issue can be justified by the imperative 
needs of public safety. However, this is not always the case. In times of crisis or on 
the pretext of difficulties, Governments continue to use and abuse these facilities; 
the world to-day, unfortunately, offers only too many illustrations of this practice. 

Excessive issues of paper money immediately affect the rates of exchange. 
No limit can be fixed for the fluctuations in the exchange between a country with 
metallic money and a country with inconvertible currency. 

If the trade balance becomes unfavourable, as is usually the case, gold is 
required to pay the foreign creditor. No gold is supplied by the Bank of Issue; it 
is taken from the currency, and a premium on gold is inevitable. 

A paper-money system has always been regarded as inconsistent with the 
very principle of a monetary convention; yet to prevent this state of affairs is 
easier said than done, because circumstances which it is impossible to control may 
compel Governments to adopt such a system. 

M. Louis Renault, a French jurist, who is certainly qualified to speak on matters 
of international law, has brought out very clearly the vulnerable side of conventions 
dealing with the monetary system : 

"By a convention of any kind," he writes, "freedom of action is restricted, 
since an obligation is assumed to observe certain rules, and since, so long as the 
convention lasts, it is only possible to be released by the consent of the other con- 
tracting parties. For that reason, only temporary conventions or conventions 
which may be denounced should be concluded. For that reason also each State 
must, even during the period for which the Convention is in force, retain full freedom 
of action on all really essential matters. These are the grounds on which serious 
objections may be brought against any monetary union. The monetary system 
is of such importance in the economic life of a nation, and it may require the adoption 
of measures so essential to the very security of the country, that it is dangerous 
to renounce freedom in this matter. The country runs the risk of suffering heavy 
losses or failing to fulfil its obligations, which is equally regrettable." 

Monetary unions cannot really be compared with other unions, such as the 
Telegraphic Union and the Postal Union. The Telegraphic Union, which was 
founded at practically the same time as the Latin Union, dates from May 17th, 
1865; at present it extends all over the world, to the general satisfaction of all 
concerned. This result is due to the fact that it is concerned with administrative 
objects and that the modifications which require to be made in administrative 
services can be quite easily effected without the necessity for interfering with prin- 
ciples of legislation. 

The right of determining the monetary system constitutes one of the essential 
attributes of sovereignty, and, if we exclude the case of small States which may 
occupy an exceptional position, it is dangerous for a country to renounce any part 
of this right and to bind itself in this connection to a foreign Power. Experience 
shows that it is the most prudent country which in these matters suffers from the 
failings of others, while, when each country preserves its freedom, each must support 
the burden of its own errors and its own mistakes. 

Bamberger, who has always shown remarkable insight into currency questions, 
wrote: "Money, in the international sense, cannot be regarded otherwise than 
as of correct weight and of full value. It follows, therefore, that to enter into a 
monetary convention with a State is tantamount to imposing upon it an obligation 
never to undertake a war, nor to undergo a revolution or an internal economic 
crisis — a promise which is equally foolish on the part of both of the contracting 
parties and consequently doubly foolish in the case of reciprocal obligations." 

There is doubtless something very alluring to certain minds and flattering to 
the imagination in this sort of fraternal union of nations in the monetary sphere. 
But theory is not sufficient to bring about such a union. If we go to the root of the 
matter, and the idea is compared with actual facts, numerous objections are dis- 
covered, and nothing can compensate for the serious dangers which result from 


agreements between independent Governments on a matter so closely connected 
with their respective rights of self-government. 

The history of monetary unions which were concluded during the last century 
serves to confirm these views. 

The monetary convention entered into between the States of the German 
Zollverein in 1837 and 1838 may be credited with introducing a certain measure 
of order into the anarchical monetary conditions which prevailed in many small 
States beyond the Rhine; but it must not be forgotten that these States formed 
a political federation and that they had reciprocally renounced certain attributes 
of sovereignty — a renunciation to which independent States might not submit. 

The Austro-German monetary union which was concluded in 1857 was a 
deplorable failure. 

As regards the Latin Union, founded in 1865, it has experienced disappoint- 
ments of every kind, and the number of conferences and additional acts itself 
bears witness to all the difficulties involved. 

With these facts before us, we are of opinion that, under present conditions, 
the monetary system must be national and that political unity must be the pre- 
cursor of a common monetary system. 

For that reason many schemes which have been conceived and investigated 
by notable thinkers can only be regarded as capable of realisation in the more or 
less distant future, and their fulfilment must be regarded rather as the crowning 
economic achievement of a new international political situation, which it is the 
special task of the League of Nations to create in the course of time. 

However, while respecting the full autonomy of each State, I am convinced 
of the value of periodic conferences, attended by directors of Banks of Issue, for 
the purpose of considering in common the discount policy, the stabilisation of the 
value of gold and the establishment of an international system of transfers sup- 
plemented by a clearing office. 

At present the intercourse between Central Banks is limited as a rule to informal 
friendly relations. Something more is required, and I feel convinced that discussions 
between directors of Central Banks of Issue might lead to the valuable result of 
introducing a certain measure of order into the internal monetary policy of many 

The main difficulty arises from the fact that Banks of Issue are too often merely 
a political tool in the hands of Governments who themselves are the sport of the 
political parties on which they depend. 

Ministers of Finance would be in a much stronger position to resist the demands 
for expenditure made by their colleagues if they were expressly forbidden to resort 
to the dangerous expedient of discounting Treasury bonds in the Banks of Issue. 
When the exchequer is empty and it is no longer possible to obtain money by the 
artificial, dangerous and speedily fatal device of the printing press, then wiser 
councils frequently begin to prevail. Happy the countries where the directors of 
Banks of Issue have sufficient independence to say " No" to the demands of Govern- 
ment poUcy. 

It is necessary to safeguard Governments against their' own weakness. If in 
the future the provisions indispensable for the maintenance of a sound paper cur- 
rency should be settled by an international agreement, internal monetary legislation 
would become more stable and conform more closely to true monetary principles, 
because it would be placed under the protection and guarantee of an international 

In this connection the consistent co-operation of Banks of Issue would be of 
great value in investigating the best methods of returning to normal conditions. 

Certain countries will be able, by economy and labour, to return by degrees 
to the former gold parity. 

Other countries, where the evil is already too serious, will be unable to escape 
bankruptcy by having recourse to the devaluation of their money through the 
establishment of a new gold parity. 

AU the various cases require to be investigated in the light of economic principles 
and special circumstances. 

International trade is fatally prejudiced by the instabiUty of the exchanges, 
which inevitably renders any buying or selling transaction in foreign countries a 
speculative operation. 

The Banks of Issue which, before the war, were responsible for the preservation 
of the monetary standard and the maintenance of the exchanges within strictly 
defined limits, are in the best position to determine the basis of the monetary 
reconstruction of Europe. 


April 1922.